Jump-Starting Private Equity Value Creation: The Crucial Role of Pre-Acquisition Due Diligence and the First 100 Day Plan

MACRO INVESTMENT MARKET CHALLENGES A HEADWIND FOR PRIVATE EQUITY VALUATIONS

Private Equity Sponsors are facing their most challenging valuation market since the great recession of 2008–09. Heightened inflation and interest rates will continue to be valuation headwinds. A recent article from The Economist detailed some of the challenges to private equity sponsors in this next cycle.

As detailed in the article: “During the past decade, rising valuations for portfolio companies, and cheap financing with which to buy them, boosted returns and reeled in cash at an astonishing clip. Improving the efficiency of a firm, by contrast, contributed less to returns. The [PE] industry that emerges from this period will be a different beast from the all-consuming giant of the 2010s. The new phase will favour owners willing to roll up their sleeves and improve operations at the companies they have bought.”

A NEW AND CHALLENGING ENVIRONMENT CALLS FOR A STRATEGY UPGRADE

In this next cycle, success will depend upon the Sponsor’s ability to drive multiple expansion at the portco-level. However, with increasing inflation a looming and continued threat, time is not necessarily on their…