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Private Equities - Addressing challenges in Value Creation

Gone are the days when private equity stirred up connotations of financial engineering and little else. Today people recognise that private equity firms improve underlying business functions and operations, increasing their value and chances of success. 

In recent years, many private equity firms have set up in-house teams of operational specialists, who have evolved from traditional investment banking and strategy consulting backgrounds. 

This has paved way to a healthier, and frequently more collaborative, approach between CEOs and private equity operational teams, where CEOs welcome the intervention and help from the firms.

Where are CEOs looking for support from private equity firms?

According to a study from ATKearney, out of fourteen different choices, "Business and Growth Strategy" is the area where CEOs are asking for the most support from private equity firms.

This is not surprising. The Gartner 2018 CEO Survey looked at responses from 460 CEOs and C-level business executives to pinpoint goals and concerns from the C-suite. Respondents ranked "growth" as a top priority.

But are private equity firms prepared to deliver support on "growth" to CEOs?

Over the last few years, with the acceleration of digital as the major source of disruption and transformation across industries, growth is becoming more complex.  

With digital audiences, digital transactions, digitally enabled products and digital collaborations, acquiring customers and maximising their lifetime value efficiently involves the orchestration of multiple practices and areas of expertise.

With CEOs looking for deeper structural sources of growth, and to develop disciplined ways to exploit digital opportunities to grow their business, private equity firms must evolve their skills in four different areas:

  • People and Culture - Traditionally private equity firms focus on more operational and immediate value creation areas. However, the right "culture" can not only have an impact on the value of the asset, but on the collaboration with the CEOs. According to Gartner, thirty-seven percent of CEOs are looking to make significant culture changes by 2020. When considering CEOs of companies with digital initiatives, this number rises to 42%. 
  • Marketing and Sales - Sales is becoming more and more integrated with marketing, where significant progress on technology-enabled automated lead generation, nurturing and conversion has been made. These teams now need to have deep expertise in all things organic, paid traffic, digital influence, articulated acquisition funnels, attribution models and customer relationship management. 
  • Data and Technology - The last few years have seen the emergence of "growth stacks" as different pieces of technology drive client acquisition, servicing and retention. These generate and integrate data from, and with, a number of different internal and external sources. Private equity firms need to help their investments implement and make the most of their stacks and data.
  • Content and Communications - Long gone are the days of the "campaigns" as a way to drive growth. To be competitive, companies now have to develop different levels of communications, addressing different moments of the customer acquisition funnel, articulating different benefits to different audiences. Content engines are required to fuel growth needs, and most private equity firms need to increase their ability to intervene in this area.

Evolving skills in all these areas, which is essential to effectively drive growth, can prove challenging for private equity firms. Different investments will require different skills and approaches, and very quickly firms will need to grow their teams significantly if they want to be effective. 

A faster and more cost-effective alternative to driving value creation in investments is to partner with growth specialist firms. Growth specialist firms who have the expertise to cover the four critical areas, and who can focus on growth outcomes to quickly align to the investment business goals, will help CEOs while keeping the firm's headcount and costs under control.

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