Recently, several members of our M&A practice participated in the PEI Operating Partners Forum in New York City, where the private equity community gathered to share best practices on value creation. Here are four takeaways we found interesting and wanted to share:
And they don’t mean adaptable businesses, they mean adaptable people within the management team. One private equity executive said to enact the right digital transformation initiatives within the first 12-18 months, it’s more important to have the ability to understand, adapt, and pivot than having the hard, technical skills to execute. They also need to possess a drive for change and be inherently intellectually curious. Assessing these traits before a deal is done will become a differentiator and a new imperative.
In fact, one panelist was frustrated that after five years of chatter, it hasn’t happened yet. Everyone feels the need for high prices to come down, and a market correction would help accomplish that. It would also reinforce the important role of operating partners who are traditionally focused on driving value over the long term through a strategic vision vs. short-term tactics like major cost-cutting.
In a packed room, the conversation about data and analytics turned to “but how do we trust the data?” The answer: No one’s data is perfectly clean and as your data set only grows, it will never reach 100% certainty. The key is focusing on progress vs. perfection and getting it to an acceptable margin of error. And by the way – most businesses need to start with maybe 7 to 10 primary data points to provide a more accurate look at their operational costs – data points that are readily available. A lot of value can be found (and created) with just those few data points.
For more complex businesses, this might not be the case – but one PE firm has constructed “cybersecurity in a box” which is a checklist of requirements that can be completed within a week by each new portco. These requirements often require tools, which the portcos can bring to the table if they have them already, and if not, the PE firm provides them at a steeply discounted, negotiated rate. While this doesn’t replace a long-term cyber strategy built on resilience, it is a sound starting place that, in the first week, protects the asset you just bought.
What we enjoyed most about these trends is that they are practical and immediately useful. What do you think of these points – do you agree or disagree with the perspectives we heard at the conference?
I am even more accessible than the other modals.