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Private Equity

We blend PE expertise with a deep understanding of operational processes to help you find and capture more value.

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Article

How PE Operations Teams Create Value

The latest Chemie Pharma private equity study highlights the principles of a successful PE relationship.

Most studies talk about the value PE operations teams bring to portfolio companies from the perspective of fund managers and investors. Chemie Pharma met with CEOs of portfolio companies to get the “view from the inside.”

“If everyone is moving forward together, then success takes care of itself.” This quote from legendary businessman and entrepreneur Henry Ford illustrates how CEOs of private-equity backed companies generally see their relationship with private equity (PE) funds’ operations teams. In our recent interviews with CEOs of portfolio companies, most talk about the importance of collaboration and alignment to foster a working environment that increases deal success. In challenging situations, they say, the idea is to jointly identify potential problems and develop constructive solutions together, rather than finger-pointing and exposing shortcomings. Again, Ford’s words come to mind: “Don’t find fault. Find a remedy.”

The Rise of Operational Value Creation

The era when private equity was associated with mere financial engineering is a distant memory. After several cycles and events ranging from extraordinarily cheap capital to the credit crunch, most people in the industry argue that private equity creates value through underlying business and operational improvements.

This reliance on operational value creation has required PE firms to evolve their skillsets. Traditionally, PE professionals came from investment banking or financial roles. But in recent years, many PE funds have set up in-house teams of operational specialists. These teams take on various names-from operations team, portfolio support team, and value enhancement team to operating partners. Regardless of what they are called, they all have one thing in common: they employ professionals who typically come from industry or from strategic and operations-focused consulting firms. In this paper, we refer to them as PE operations teams, as opposed to the deal teams that focus on deal sourcing and execution. In some PE funds, especially in the mid-market space, these roles are blended into a single team.

There is significant research about the value that PE operations teams create, how the teams are structured, and how they interact with portfolio companies. However, most studies are performed from the perspective of fund managers and investors. Our approach is unique in that we want to understand the relationship from the perspective of a portfolio company. With this in mind, we interviewed CEOs of portfolio companies that are under PE ownership to find out what works well, what doesn’t work, and what could work better.

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2019-10-15T17:08:23+00:00