Operating improvements most important value creation lever, say PE firms

Operating improvement at the portfolio level is an imperative part of doing business in today’s challenging environment, according to a private equity survey conducted by Gotham Consulting Partners.

The survey found that 77 per cent of respondents think operating value improvement is the most important value creation lever, while 64 per cent cite financial leverage as the least important.

‘The overall economy, coupled with the rich valuations and excess use of leverage over the past few years, has left private equity firms looking for best practices to protect their portfolio. It is more important than ever for private equity firms to look for next-generation operating value,’ says Deepak Agrawal, managing director of Gotham Consulting Partners, a New York-based consulting firm.

The survey also found that 73 per cent of respondents have adopted more conservative assumptions in their investment thesis.

Market conditions are affecting deal flow – 66 per cent of respondents report fewer deals are available, while 42 per cent believe there is an increase in distressed or lower quality deals. A further 35 per cent of respondents say credit is not available at all.

According to the survey, private equity firms are spending more time trying to boost portfolio company performance: 77 per cent of respondents are increasing involvement with company management, primarily focusing on capital structure, lender negotiations, and recession planning.