Article by Stacey Varsani
Founder & Principal Consultant, Hadouken Consulting
The private equity landscape is facing unprecedented challenges. With portfolio companies ten times more likely to face bankruptcy than their non-PE-owned counterparts (source: CFA Institute), it's clear that traditional value-creation approaches need rethinking. Although central banks are now cutting interest rates, the post-COVID hiking cycle continues to affect private markets. Tighter financial conditions and increasing uncertainty, volatility and regulatory scrutiny have limited the appetite of strategic and financial buyers, as well as the ability to IPO businesses.
According to a March 2024 Bain & Co. report, private equity managers were sitting on a record 28,000 unsold companies earlier this year, worth more than US$3 trillion. The data from this report showed that over half of all unsold assets (54%) had been held for three years or less. However, companies held for five years or longer increased 18% year over year in 2023, and companies held for four years or longer were at the highest level since 2012.
Beyond the traditional pressures of generating returns, PE firms are also navigating stricter ESG regulations, complex supply chain dynamics and heightened stakeholder expectations. The old playbook of financial engineering and cost-cutting alone no longer suffices in dealing with these challenges. Success requires a more nuanced, sustainable approach to portfolio company management and value creation.
ESG and Supply Chain Resilience: Key Value Drivers
ESG considerations have evolved from a tick-box exercise to a fundamental value driver. New regulations across markets demand robust ESG frameworks, but forward-thinking firms are discovering that strong ESG practices can also drive operational excellence. From reduced resource consumption to enhanced stakeholder relationships, ESG integration is becoming a crucial lever for sustainable value creation.
Supply chain optimization is closely related to ESG. The increasing importance of traceability and recent global disruptions have highlighted the critical nature of robust supply chain management. Successful portfolio companies are those that can optimize their supply chains for efficiency, traceability and resilience. This involves strategic supplier diversification, digital transformation of supply chain operations, implementation of sustainable sourcing practices and enhanced inventory management systems.
The Power of International Standards
As portfolio companies scale internationally, the adoption of international standards becomes critical. ISO certifications, particularly in quality management (ISO 9001), environmental management (ISO 14001) and occupational health and safety (ISO 45001), provide a structured framework for operational excellence. They play a key role in the supply chain optimization and ESG efforts mentioned above. Adopting standards not only ensures compliance but also leads to significant improvements in operational efficiency, risk management, consumer trust and global market access.
Integrating Revenue Growth with Operational Excellence
While operational improvements are crucial, sustainable success requires parallel focus on revenue growth. It is essential to align sales strategies with operational capabilities, leverage operational improvements for competitive advantage, develop market-responsive pricing strategies and build sustainable customer relationships.
Conclusion
The future of successful portfolio company management lies in sustainable, integrated approaches to value creation. Firms that can effectively combine operational excellence, ESG integration, and revenue growth while maintaining cost efficiency will be best positioned for success.
The complexity of modern portfolio management demands specialized expertise across multiple domains. However, maintaining separate teams or internal expertise for each function can be costly and inefficient. At Hadouken, we offer an integrated team that can help you achieve maximum value across your investment horizon. We offer:
A coordinated, laser-focused approach to value creation
Insights and solutions across the three key pillars of sales, finance and operations
Cost-effective access to specialized expertise
Consistent methodology across improvement initiatives
Decades of experience working with global industry leaders
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