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One-off triple win growth opportunity for private equity, says Newton

Newton, an operational and financial improvement specialist in Europe, believes current market conditions have created an opportunity for private equity portfolio companies to deliver value and efficiencies.

During the depths of a recession, some companies go under and this sets up a new marketplace dynamic that only really reveals itself when things start to improve.

At this point, fewer companies find themselves trying to respond to unplanned order levels.

The result is the worst of all possible worlds: companies that, after a long period of dismal trading, need desperately to be able to exploit growth opportunities, find themselves unable to do so.

Newton believes we are at this point in time right now.

"Partly driven by customers replenishing depleted inventory levels and partly competitors going under, we are now seeing businesses with order books exceeding demand. This is causing serious strain on supply chains that have been weaned for leaner times. The result is that companies are seeing lead times extending, delivery performance deteriorating, customer satisfaction dropping, marginal costs accelerating and opportunities being missed," says Tom Wedgwood, director at Newton.
 
The situation is particularly poignant for private equity because liquidity remains so restricted. The opportunity for portfolio companies to exploit these market opportunities and deliver value through internal processes and efficiencies is not to be missed.

Wedgwood says this activity can deliver a triple win: "Win one, because operating performance improvements directly enhance portfolio value. Win two, because the improvements afford positive PR opportunities by demonstrating to a skeptical world that private equity can play a key role in a more prosperous future by growing businesses and protecting jobs. And win three because, in a world where up to 50 per cent of mid cap firms may disappear and are ultimately competing for survival, demonstrating an ability to grow a portfolio’s turnover and profit is an important element in ensuring success in raising future funds."

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