The Foundation of Value Creation Insights, Roadmaps and Exit Maximization
In the current market, value creation for private equity buyers necessitates a comprehensive strategy—starting during due diligence and extending through to the exit phase. This strategic approach encompasses four vital pillars:
1. Investment Thesis and Synergies: Identifying the underlying themes, market dynamics and unique deal drivers that define the “why” for owning a portfolio company and the “how” enterprise value can be increased.
2. Roadmap Development: Using the thesis and synergies as navigational beacons, a roadmap is developed to design a functional and industry-specific value creation program focusing on revenue, EBITDA and free cash flow. A numbers-based approach anchors the program goals to a multi-year plan for the private equity firm and portfolio company leadership to then execute.
Identify themes, market dynamics and unique deal drivers to define the "why"
3. Continuous Transformation and Execution: Advancement of the roadmap is achieved by performing actionable steps to drive value. Progress is frequently measured and monitored against key performance indicators to provide milestones towards roadmap success. As revenue and bottom-line growth vary versus plan, the private equity firm and portfolio companies should refine their plan through an annual outside-in evaluation of the thesis and roadmap.
Events that could make a large impact on value creation roadmaps include sales, business changes or IPO
4. Eye on the Exit: The path to value creation and the foundations of such a roadmap often depend on the type of exit expected for the portfolio company. Examples of events that could make a large impact on the value creation roadmap include a sale of assets or partitioning of the company, a sale to a strategic competitor versus a sale to a financial buyer, shutting down parts of the company and the expectation of an IPO exit. Drawing the value creation roadmap with an eye on the exit ensures the firm’s goal of maximizing returns.
These key tenants should also be applied using a portfolio approach, or leveraging the resources and network of the portfolio to create value through cost synergies and knowledge transference.