PE partners indicate direct initiatives, skilled resources and formal process as key factors in achieving value creation
(Boston, Mass. – July 11 , 2018) Operational due diligence already plays a significant part in the private equity partners’ decision to invest and will increase in importance in the next two years. A new survey from global supply chain and operations consulting firm, Maine Pointe, asked private equity managing partners, partners and senior directors in North America and Europe to share their views on the effectiveness and financial impact derived from the use of operating partners.
Key Findings:
- The over-arching finding from the survey is that, while the use of operating resources is relatively high and continues to grow, the measurable effectiveness of these resources is unclear. We may not truly understand the alpha – or the incremental value creation result – until we have more time to observe these recent vintage fund performances
- Most PE firms surveyed believe direct initiatives within their teams are capable of driving a higher level of cost reduction, cash flow and/or growth in portfolio companies than is currently achieved
- However, lack of skilled resources available in house, time constraints and difficulties getting CEO/management cooperation are cited as among the chief barriers preventing PE firms from driving more value in cost reduction and cash
- 60% of respondents either lack, or are unaware of, a formal process for resource evaluation. This is mainly due to operating groups heavily relying on their networks and word of mouth, as opposed to using data-driven results when selecting a third party resource
- 92% view individual portfolio company performance as the key performance metric
- The survey reveals the importance and value of operating partners continues to grow within the PE marketplace and it is clear that operating partners are driving value. However, not as much value is being driven as desired and there are some difficulties in measuring performance. It’s clear that while an increasing number of firms are coming around to the idea of using operating partners to drive value, there is a distinct lack of clarity around what model is the most effective
"Private equity is going through some changes," said Mark McTigue, Maine Pointe's VP, Industry Partner, Private Equity. "Many of the firms we work with have created an operating partner role, but they are struggling to get it quite right and measure performance.â€
A growing focus on value creation to achieve returns has forced PE firms to evolve their skills set. Investors demand results and want to know how the PE firm plans to deliver them. Do they have an operating partner and, if so, what value are they driving? The challenge, as the survey results support, is finding the right individuals with the right experience on the ground. "This confirms what we are seeing in the market, that many PE firms do not have the processes or the tools they need to evaluate their employees," said Dan Ginsberg, Executive VP Private Equity at Maine Pointe.
To find read the full survey report, click here.
About Maine Pointe
Maine Pointe is a global supply chain and operations consulting firm trusted by many chief executives and private equity firms to drive compelling economic returns for their companies. We achieve this by delivering accelerated, sustainable improvements in EBITDA, cash and growth across their procurement, logistics and operations. Our hands-on implementation experts work with executives and their teams to rapidly break through functional silos and transform the buy-make-move-fulfill supply chain to deliver the greatest value to customers and investors at the lowest cost to business. We call this Total Value Optimization (TVO)â„¢.
Maine Pointe’s engagements are results-driven and deliver between 4:1-8:1 ROI. We are so confident in our work and our processes that we provide a unique 100% guarantee of engagement fees based on annualized savings. www.mainepointe.com