Managing Spend is the Key to PE Success in the Next Cycle

“Greater ability to manage our portco spend” — That is one of the biggest priorities we are hearing today at E78 Partners from our private equity partners/clients.

For most of the last decade, perpetually low interest rates coupled with a booming economy led to historic levels of private equity investment. For most of that period, the capital markets were wide open.

Businesses with the ability to grow top-line revenue had no trouble accessing new equity and debt capital to fuel continuous growth. Cost management was an afterthought.

However, that supportive macro environment ended in 2022. Increasing inflation, aggressive fed rate hikes, and future economic uncertainties combined to create the most challenging funding and investing market since the Great Recession.

In the last cycle, success for PE Sponsors was largely defined in terms of top-line growth. In this next cycle, successful PE Sponsors will be the ones skilled at managing the bottom line, and expanding EBITDA.

As recently discussed in the attached article from Concertiv: “With the cost of capital going up significantly, every dollar must be deployed at a higher threshold. When it comes to spend management, the front office is focused on PortCo performance, and we are seeing CFOs and…