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Practical Insights (Blog)

Adapting to Private Equity's New World Order

Dan and Teresa.pngDan Ginsberg, EVP and Teresa Garti, VP, Private Equity discuss why PE executives are increasingly focusing on operational improvements to quickly generate the returns they require.

Earlier this year, we gave you a brief overview of four key themes that we believe will have a significant impact on the PE market in 2017. This month, we’re diving a little deeper into the first of those themes; how and why PE executives, particularly those operating in the middle market, are turning their attention to operational improvements in order to achieve accelerated value creation.

Adapting to the PE market's "new normal"

The PE market closed out 2016 with a relative bang, marking its third best year over the past five years. However, the first quarter of 2017 has highlighted the ongoing need for differentiation among buyers in their pursuit of quality assets.

We know the “new normal” of high valuations (current averages are around 10x EBITDA) and intense M&A competition from strategic and financial sponsors will stymie some buying and selling activities. How will buyers generate value for their investors? The answer will certainly include creative investment strategies and an early, deliberate approach to value creation.

The need for an accelerated value creation process

In today’s challenging environment, buyers require a different toolkit to address the need for an accelerated value creation process. Successful exits will rely heavily on EBITDA and multiple expansions through performance improvements to the operations of their portfolio companies.

Our 2016 Operating Partner Study revealed that approximately 50% of the top US PE firms have an operating partner, operating teams, or operating advisors to address this very challenge. The study found that firms, both with and without in-house operating expertise, are leveraging 3rd party consultancies for operational due diligence as well as portfolio company analysis and change implementation.

As an example, after a rigorous 17-week supply chain transformation for a specialty chemicals company, Maine Pointe improved EBITDA by 26%, dramatically increasing the overall valuation of the company. Reduced manufacturing and raw material costs, as well as new standards and processes for ongoing productivity improvements also contributed to reduced working capital and maintenance expenditures.

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For new investments, the journey towards value creation begins with operational due diligence, which will be the focus of our next blog.

If you would like to learn more about how Maine Pointe can help rapidly increase the value of your portfolio companies through operational performance improvement, contact us.

About Us

Maine Pointe is a global implementation-focused consulting firm trusted by many chief executives and private equity firms to drive compelling economic returns for their companies. We achieve this by delivering accelerated, sustainable improvements in both EBITDA and cash across their supply chain and operations. Our hands-on implementation experts work with executives and their teams to rapidly break through functional silos and transform the buy-make-move-fulfill supply chain to deliver the greatest value to customers and investors at the lowest cost to business. We call this Total Value Optimization (TVO)™.

Maine Pointe’s engagements are results-driven and deliver between 3.5:1-12:1 ROI. We are so confident in our work and our processes that we provide a unique 100% guarantee of engagement fees based on annualized savings. www.mainepointe.com

Topics: Private Equity Operational Improvements