Introduction
The foundation of private equity relies on the ability to acquire companies using a blend of investor equity and strategically leveraged debt. This blend, often called the capital structure, is crucial to achieving optimal performance.
In the past two decades, the landscape has evolved, shifting debt into a standardized commodity. Now, the ability to craft superior financial strategies for portfolio companies is a given. To truly stand out, private equity firms must embrace a more sophisticated approach—focusing on generating alpha by driving substantial EBITDA growth, commonly known as value creation.
The traditional profile of private equity executives was historically rooted in financial expertise, specializing in areas such as mergers and acquisitions, debt or equity. But as the emphasis on value creation intensifies, private equity firms are actively seeking out individuals with a demonstrated aptitude for enhancing operational efficiency or who possess exceptional industry knowledge.
Consequently, the private equity landscape has evolved to include the strategic recruitment and development of executives with a profound ability to optimize company operations or who have demonstrated industry-specific expertise. This paradigm shift has ushered in the rise of operating partners within private equity firms, a trend that is swiftly gaining traction and recognition for its effectiveness.
In this comprehensive paper, we delve into the strategic maneuvers utilized by private equity firms to craft and implement effective value creation plans for both their overall portfolios and for individual companies. Spanning the entire deal cycle, from acquisition to eventual exit, we dissect the actionable steps and proven approaches that underpin their success.