When Good Isn't Good Enough

Dear Valued Partners,

The recent Bain 2024 Midyear Private Equity Report has shed light on the challenges our industry faces, and at KLES, we're not just observers—we're solution providers.

Let's cut to the chase: The PE landscape is tough. High interest rates, cautious LPs, and a complex exit environment are testing even the most seasoned firms. But here's the thing—challenges breed opportunities for those who know where to look.

Summary of the Report

1. Market Activity: Deal activity has been roughly flat; Exits have also been flat; Fund-raising is down.
2. Industry Tensions: Unexited investments may remain unexited for longer than anticipated; GPs are facing challenges in balancing fund-raising, managing active portfolio companies, and satisfying LPs.
3. Interest Rates Impact: Rising interest rates have led to sharp declines in dealmaking; This has created challenges for buyout-backed portfolio companies in making interest payments.
4. Liquidity Concerns: There's an increasing focus on getting cash back to investors; The industry is facing a liquidity crunch.
5. Operational Focus: There's a growing emphasis on operational improvements and value creation in portfolio companies; Boosting EBITDA is seen as a key strategy to address challenges.
6. Adaptation Strategies: GPs are exploring innovative refinancing tools and strategies to manage portfolio companies; There's an increased interest in secondary markets as a liquidity solution.
7. Future Outlook: The industry appears to be finding its footing, but significant challenges remain; The next 6 to 12 months are expected to be challenging for GPs in managing their portfolios and satisfying LPs.

These highlights suggest that the private equity industry is navigating a complex environment characterized by economic pressures, changing market dynamics, and the need for new strategies to create value and manage liquidity.

Talent Value Creation as a Priority:

1. Operational Improvements: The article emphasizes the need for "a defined program to improve earnings before interest, taxes, depreciation, and amortization (EBITDA) and shore up the exit story." This implies a focus on operational improvements, which often involves talent optimization.
2. Value Creation Model: The article stresses the importance of reevaluating the firm's value-creation model. It notes that "the premium will be on producing margin and revenue growth," which often requires skilled talent management and development.
3. Operating Teams: The article questions the effectiveness of operating teams in working with management to drive performance. This highlights the importance of having the right talent in place to execute value creation strategies.
4. Resource and Capability Assessment: The article suggests firms should assess whether their teams have the right resources and capabilities to succeed, and if not, determine how to acquire them. This directly relates to talent acquisition and development.
5. Portfolio-Wide Approach: The article advocates for a comprehensive, portfolio-wide plan to deliver on proof points for LPs. This includes "a more repeatable approach to value creation," which often involves developing and implementing best practices across the talent pool.
6. Governance for Decision-Making: The article emphasizes the need for proper governance to make decisions across the portfolio. This implies having the right leadership talent in place to make these critical decisions.
7. Balancing Individual and Portfolio Needs: The article notes that "what's best for an individual company may not be best for the portfolio." This suggests the need for strategic talent management across the entire portfolio.

The importance of having the right people, skills, and capabilities in place to drive value creation in a challenging economic environment is at an all time high. The focus on operational improvements, effective management, and strategic decision-making all point to the critical role of talent in achieving private equity firms' objectives.

YES, at KLES we've always believed that people are the cornerstone of success. In these times, this belief is more crucial than ever. Here's how we're helping PE firms turn obstacles into opportunities:

• Operational Wizardry: We're not about quick fixes. Our talent optimization strategies dig deep, boosting EBITDA and cash flows when it matters most.
• Alignment Alchemy: Balancing portfolio management with LP satisfaction? It's an art form, and we've mastered it. Our executive team alignment techniques create harmony in the boardroom and beyond.
• Exit Excellence: A successful exit starts long before the sale. Our leadership development programs prepare your portfolio companies to shine when it's showtime.
• Change Champions: Market shifts? Bring 'em on. Our change management expertise ensures your organizations don't just survive transitions—they thrive in them.

Remember, in the PE world, standing still is moving backward.

At KLES, we're all about propelling you forward. With our 20+ years of C-level experience and a track record of scaling companies from startup to industry leaders, we don't just talk the talk—we've walked the walk.

So here's our challenge to you: Are you ready to turn market headwinds into jet streams for your portfolio?

Let's connect and explore how KLES can elevate your game.

Because in the world of PE, good isn't good enough. It's time to say YES to excellence.

P.S. Want to dive deeper into how we're tackling the challenges outlined in the Bain report? Hit reply, and let's set up a call. Your portfolio's potential is waiting to be unleashed.

Read the Bain PE Midyear Report Here:

https://www.bain.com/insights/private-equity-midyear-report-2024/