The Deal and Pepper Hamilton have today published a new report titled “Strengthening Companies: Operational Improvement Trends” which outlines the findings from a new survey of private equity executives. The survey demonstrates the importance of operational improvement and the thought that private equity firms put into the process. A link to a free copy of the report is available at the end of this article.
“In an environment where middle-market private equity firms are holding onto portfolio companies longer, it is of strategic importance to the funds to focus on operational improvements within these companies to create value and returns,” said Bruce Fenton, partner and chair of the Private Equity Practice Group and Investment Funds Industry Group for Pepper Hamilton. “We are seeing many of these issues with our private equity clients around the country and it is helpful to be able to share these insights of senior private equity professionals.”
Survey highlights include:
- 48.4% of those surveyed said they begin focusing on operational improvements before signing a letter of intent while only 11.6% said they begin after reaching a definitive agreement and 11.6% said they do so after closing.
- Asked how they plan for operational improvements after closing, 47.5% said they use a 100-day program, while just 16.8% said they use a three- to five-year plan.
- Nearly 80% of respondents said they believe operational improvements are more important now than it was before the financial crisis.
- Respondents agreed that former CEOs and senior executives are most effective at identifying problematic operational issues at every stage: during due diligence, after a definitive agreement and after one year.
- The survey also revealed wide agreement that sales execution has been the most important operational improvement to their investment thesis. Healthcare cost improvement was seen as the least important issue.
“Our survey results reveal some of the thinking that goes on in the middle market private equity space, looking at everything from when and how operational improvements are considered to how employees impact these changes,” said Jeffrey Kanige, Editor in Chief of The Deal. “What was most interesting to hear was feedback about private equity thinking pre- and post-crisis. Those tough financial times are undoubtedly playing a major role in decision-making today.”
For a free copy of “Strengthening Companies: Operational Improvement Trends” click HERE.
© 2014 PEPD • Private Equity’s Leading News Magazine • 4-29-14