Navigating Today’s Value Creation Challenges

Boyden UK & Ireland's Private Equity team (Siwan Jones & James Hunt) welcomed Operating Partners from a number of PE funds to discuss the Value Creation agenda and outlook for 2024. Thank you to all attendees from Investcorp, Aurelius, Five Arrows, Bregal Investments, Connection Capital LLP, GTO Partners, Strategic Value Partners, ECI Partners and Helios Investment Partners.??

?Here we have summarised several useful takeaways from the event:??

?·???????? 2023: It was accepted that 2023 saw a downturn in deal flow driven by the global economy, interest rates and global crises. PE funds were also facing fundraising challenges and the focus on value creation within portfolio companies.

·???????? Revenue drivers: There was an understanding that inflation had hit businesses hard, and in some cases, these costs could be passed on to customers. Still, portfolio businesses must be more innovative this year to grow organic sales.? Quality salespeople with proven track records would be in demand within the portfolio companies or to advise at the fund level to drive best practices across the portfolio.??

·???????? Adoption of AI: AI was seen as a major topic all businesses had to address. There are areas where it could help drive huge efficiencies. The positive outlook on AI implementation across the portfolio was highlighted, specifically focusing on tangible applications, looking at ways to share successes across the portfolio. However, there were also areas where it could be seen as a major threat to a business, so its influence will differ for each business.??

?Talent??

·???????? Assessment: Since Covid, PE has seen the difference between good and great management teams and the meaningful impact that this has on a portfolio company's success.??

·???????? Strong management was recognised as a key success factor and more rigour was needed to choose new executives. More emphasis was also placed on being more thorough, rather than simple interviewing and psychometrics. Personality assessment and forensic reference checking were now becoming more commonplace.???

·???????? Role of Chief Transformation Officer: This role is becoming more commonplace in businesses so that an individual can oversee the delivery of projects in the Value Creation Plan. This might be a permanent person in larger companies, but in smaller cap businesses, this could be an experienced Interim Manager.?

?The Year Ahead

·???????? Carve-outs and bolt-ons: Many PE companies see attractive growth opportunities for portfolio companies and expect more of these in 2024. These deals are seen as lower risk than primary investments but can still add great value.

·???????? Increasing confidence but not everywhere: For some funds, the pipeline of deals is richer and there is a general expectation that there will be more activity this year. However, there are differing confidence levels about the outlook for portfolio companies, depending on the sector.

·???????? Proactive approach: Addressing challenges and embracing strategic shifts is paramount in an ever-evolving private equity landscape.???

·???????? Preparing for exits: Given the current market conditions, PE firms were considering how best to support management teams to prepare for successful exits.

?Please contact James Hunt or Siwan Jones for further discussion or any questions.??

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