June 08, 2023
Enterprise Program Leadership

Maximizing Private Equity ROI: A Comprehensive Approach to Pre- and Post-Acquisition Success

In today’s rapidly evolving business landscape, Private Equity (PE) firms are constantly seeking ways to maximize their return on investment (ROI) while minimizing risks in their portfolios. Throughout the deal lifecycle, Private Equity firms often hire management and technology consultants due to several challenges:

  1. Operational Complexity: Private equity firms handle diverse industries with unique operational challenges. Consultants provide the expertise needed for operational optimization.
  2. Market Dynamics: Rapid changes in market trends and global competition make it difficult for private equity firms to stay updated. Consultants provide valuable insights into these dynamics.
  3. Due Diligence Limitations: Private equity firms often lack resources or expertise for comprehensive due diligence. Consultants help mitigate acquisition risks by supporting in areas like technology, operations, or market analysis.
  4. Technology Advancements: Rapid technological change is a significant challenge. Technology consultants provide essential expertise, whether it’s understanding new technologies, assessing the technology infrastructure of a target company, or leading a digital transformation post-acquisition.
  5. Change Management: Managing changes during and after an acquisition is complex. This could involve integrating the acquired company personnel, restructuring the organization, or implementing unified technology platforms. Consultants provide guidance during each of these transitions.
  6. Regulatory Compliance: Compliance is challenging, especially for firms that invest in different jurisdictions with diverse regulations. Consultants with regulatory expertise help to navigate this complexity.
  7. Exit Planning: Maximizing value upon exit is a key goal, but preparing a company for sale or an IPO is complex. Consultants provide support in areas like financial performance improvement and strategic positioning.
  8. Value Creation: Private equity firms must create value in their portfolio companies. Consultants help identify and implement opportunities for value creation, such as revenue growth, cost reduction, and operational improvement.

In essence, the complexities and challenges of managing investments across diverse industries and regulatory environments necessitate hiring experts to help. They fill knowledge gaps, provide fresh perspectives, and offer specific skills to help private equity firms overcome these challenges and achieve their objectives. Seeking help from the experts will ensure your investment’s growth prospects while de-risking the portfolio. Finding the right experts, however, is critical. The goal of external support should always be to provide a strategic edge in managing your investments effectively, ensuring optimal performance and value realization.

Here are some critical considerations during the due diligence and post-acquisition phases of transactions:

Due Diligence: Identifying Gaps and Opportunities

A thorough due diligence process is crucial to accurately assess a target company’s potential and identify gaps and opportunities for growth. There are critical areas of influence to consider, including human capital, finance, accounting, sales, customer support, marketing, technology, compliance, security, and legal. By conducting a detailed evaluation of these areas, the team can quickly identify gaps that need to be considered during the valuation phases of the lifecycle and provide strategic recommendations to drive the desired outcomes.

Post-Acquisition: Driving Operational Efficiencies and Growth

Once the acquisition is completed, it’s essential to align the investment thesis with the business and technology strategy of the acquired company. Experts will work closely with PE partners and their portfolio companies to deliver streamlined technology assessments, implementations, integration roadmaps, and business process design analysis. Post-acquisition approach should focus on five main objectives:

  1. Drive Operational Efficiencies and Cost Reduction: By decreasing support costs, rationalizing the application portfolio, and streamlining processes, costs are reduced across the portfolio.
  2. Operational Refinement and Visibility: Deploying enhanced processes, upgrading applications, and optimizing reporting and analytics capabilities enable better decision-making and business insights.
  3. Scalability: Utilizing cloud computing and data-driven strategies, identify new opportunities, improve operations, and bridge gaps in modernization.
  4. Technology as a Growth Asset: Companies need to be empowered to connect directly with customers, modernize data strategies, and develop new services, solutions, and products.
  5. Leverage Synergies: Facilitate cross-selling and up-selling opportunities, provide a 360-degree view across portfolio companies, and streamline future bolt-on acquisitions.

Value-Added Services

In addition to the core focuses, the following should be considered and tailored to the unique needs of each portfolio company:

  • IT Assessment and Roadmap: Execute an IT assessment to identify gaps in the technology stack and provide a prioritized, executable roadmap based on effort and value, either by executing the required implementations internally or by identifying the right vendor or platform to leverage.
  • Data Management and Analytics: Leverage data as an asset, incorporating data governance to match, merge, cleanse, and stage data, enabling a foundational reporting infrastructure. This allows for the evolution and leveraging of more advanced analytics with business intelligence, machine learning, or even AI.
  • CRM and Salesforce Expertise: Assess and optimize any existing customer relationship platform, ensuring maximum value and effectiveness across the integrated organization.

At Kenway, we understand the importance of a comprehensive approach to managing during both the pre-and post-acquisition phases. As a PE-owned consulting company, we understand these unique challenges, and we offer customized solutions to drive value, identify gaps, and integrate optimized capabilities across your portfolio companies’ people, process, and technology domains. Our management and technology consulting expertise allows us to drive value, reduce risks, and ultimately increase ROI for your portfolio. Contact us today to learn more about how Kenway can support your Private Equity investments.

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