Few topics are debated as hotly in private equity as the right way for a fund to increase the value of its direct investments. TALENTspy specialises in private equity. Leaving aside the legal perspective, the right model, and the right candidates, depend on the fund’s culture, the investment phase and the roles of the partners and directors, which can vary. Below we look at the pros and cons of each model.
The Operating Team model:
The deal team and the operating team look after the assets together during the holding period.
Operating team members advise the deal captains, advisory board members and/or the portfolio companies directly.
The model is popular with special situations funds, and in buy-and-build for close support of portfolio companies.
There are very different ways of setting up an operating team:
One Ops team member looks after several assets holistically over a longer period (with a lot of travel, and quite demanding).
Ops team members support individual topics case by case through project assignments (depending on phase and topic).
An Ops team member moves into the management of the portfolio company for a while, possibly longer, for example as Chief Transformation Officer.
Typical topics Ops teams work on:
Manufacturing footprint and supply chain optimisation, or supply chain risk management
Cost reduction across the board
Top-line optimisation and commercial excellence, especially pricing
Business development and market expansion, especially when a portfolio company lacks the resources for international growth
Post-merger integration of add-on acquisitions
Specific carve-out issues
This model has pros and cons too. Above all, it’s resource-intensive. But there are other challenges:
The balance between the deal team and the Ops team needs careful calibration (influence within the firm, pay, recognition and so on are highly sensitive; we see many PE firms struggling with this).
The balance between the Ops team and the portfolio company’s management needs just as much care.
The Ops team’s organisation must be clear. The most common models are organised around assets (each Ops team member looks after a number of portfolio companies or, in larger firms, a practice); others are organised around cross-cutting capabilities such as top-line optimisation, digitalisation or performance improvement.
In the following posts, we’ll discuss further models and what they mean for choosing the right candidates.
