Value creation in private equity: large transformations
Few topics are debated as persistently in private equity as the right way for a fund to increase the value of its direct investments.
Today we look at the combined model. Here the operations team works alongside the owner’s transformation team, usually supported by external consultants.
It’s a variant of the Ops model we described last time, and it’s popular for large restructurings and carve-outs worth billions.
The key features at a glance:
The deal team concentrates on corporate finance questions.
The Ops team doesn’t do everything itself but steers its own and external resources. Partners of the acquiring company take on statutory responsibility (sometimes in a dual role) as CRO, Chief Transformation Officer or COO.
Strategy or sector-specialist consultancies are brought in where the Ops team doesn’t have the expertise.
Often a transformation team is formed from internal and external resources. Its purpose:
getting the carve-out operational as quickly as possible
service level agreements with the seller for HR and ERP functionality
rapidly building the company’s own systems (especially controlling and KPI management)
strategic realignment and reorganisation
internal and external communication, and shaping the corporate culture
manufacturing footprint and supply chain optimisation, or supply chain risk management
cost reduction and efficiency
top-line optimisation, commercial excellence and market development
The drawbacks:
a very resource-intensive approach
a great deal of coordination between decision-makers and supporting players (very “corporate”)
often political
clear roles and targets are needed for every stakeholder
In a future post, we’ll look at which candidates for value creation and transformation roles are available on the market, what’s typically required and how they’re deployed.
