Three value creation levers for the next five years

Private equity firms are increasingly focused on the talent agenda, the digital experience and outsourcing to create value.

Private equity firms have traditionally created value through strategic sourcing, sales force effectiveness and managing everyday operating expenses. While these are tried-and-true levers for driving EBITDA and value, delivering on the next stage of value creation requires PE firms to think about how they are attracting and retaining people, using digital operating models and automation, and outsourcing functions.

Talent

PE firms are increasingly concerned about talent, and finding the right people takes time. “Even our deal teams are more focused on filling a chair with someone they think is good enough than filling the chair with an A-player,” says Aaron Miller, Head of Performance Solutions, Apollo Global Management. That can be a long-term mistake. “An A-player in the chair makes all the difference.”

Retaining talent requires paying attention to what employees are thinking and feeling, rather than what the C-suite assumes, says Thack Brown, COO, SAP North America. “We’ve been using some of our technologies for very rapid assessments with employees, all anonymized. … Day 1, what are the employees thinking. Thirty days in, how are they feeling, 90 days in, how are they feeling.”

Digital and automation

The automation wave is moving to middle-market companies, and PE firms are helping them improve their digital experience. “Even if you are a middle-market B2B, you probably should be thinking about your customer experience in a B2C environment, because that’s everybody’s expectation,” says David Gau, Partner – Head of Operations, Pritzker Private Capital.

Outsourcing

Moving some functions to external experts who can remain up to date in a range of areas can let portfolio company management focus on creating value. “For us, one way in which we support our entrepreneurs is by removing distractions. We want to ensure they have the ability to focus on issues that are core to growing their business,” says John Toriello, Operating Partner, General Atlantic.

Outsourcing can also be a step toward automating some functions in the future. In any case, it’s important to remember that the decision to outsource isn’t the finish line — it’s the starting line.