Ernst &Young >Issues>Private Equity - Ernst & Young - Canada

 As private equity looks to sustain value creation in these challenging economic times, private equity investors should consider these best practices:

• Proactive buying - A recent Ernst & Young study found that 82% of private equity transactions were originated proactively via relationships with the target’s management, calls from the private equity firm’s network, or company and sector tracking. Sector focus in proactive buying provides an important advantage.
• Due diligence - Early, broad and thorough due diligence also drove superior performance. Successful private equity firms conducted a full scope analysis of financial and non-financial issues that was proportional to the complexity of the business.
• Incentives and management - Evaluation of existing management early on—with a decision made several months before closing on the deal—emerged as a best practice in the study. Incentives that motivate managers to “behave like owners” are also at the heart of the private equity value proposition.
• Aggressive business plan - Insisting on an ambitious yet achievable business plan was a success factor for the sample study. Private equity investors evaluate the plan along with the management team, changing it if necessary.
• Business improvement and growth - Focus on organic revenue growth was an important element of success for private equity. Strategies such as geographical expansion, improved selling and introduction of new products and growth through acquisitions and restructuring also had a measurable impact.
• Governance - Private equity investors employ a unique, hands-on governance model that includes constant and keen oversight, defined goals and timing, disciplined decision-making and deep resources.
• Realizing value - Selling well is a central theme in the private equity value proposition.