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Accelerating PE Growth Through Operating Model Optimization

The private equity and venture capital industry is booming, with PE funds managing more than $3 trillion in assets. As a result, PE funds must do more to differentiate themselves and stay competitive. For many, this means turning to acquisitions in order to diversify offerings and accelerate growth. But with PE-led acquisitions accounting for nearly 40% of US M&A volume in the first half of 2019 (up from less than 30% in previous years), it is increasingly difficult for funds to see the same level of returns on their investments as they must bid at higher rates than ever before. In fact, exit activity and fundraising are dropping as they struggle to get the maximum value out of their transactions.

To stay competitive, PE funds should look at operational means to improve and optimize performance before—or even in place of—turning to acquisitions as a means to quickly scale. A key way to do this is by revisiting a company’s operating model, which determines how an organization is configured to use its people, processes, and technology. Often, however, the existing model does not align with a company’s organizational goals and can yield communication gaps, information hoarding, siloed workstreams, and one-off initiatives that fail to miss the mark. Getting the operating model right is especially important for PE funds as they must be prepared to act quickly given the nature of the industry where businesses are frequently bought and sold at short notice.

Here are three things PE funds can do to improve their operating model and create a more efficient business.

To stay competitive, PE funds should look at operational means to improve and optimize performance before turning to acquisitions as a means to quickly scale.

Consider a shared services model

Assessing a fund’s operating model will often reveal opportunities for structural change. For larger funds with multiple locations, implementing a shared services model can be a valuable way to streamline and standardize processes while reducing costs. By consolidating key business operations—such as accounts payable, billing, payroll, and even marketing and internal communications—firms can increase the value delivered to internal stakeholders and even implement SLAs for those internal customers. But to ensure successful implementation, companies should consider their long-term objectives from the beginning, as expanding too quickly or without the right planning can invite delivery gaps or inconsistencies.

Take advantage of technology

With automation technology on the rise, more PE funds are putting day-to-day tasks on autopilot in order to focus on achieving their strategic initiatives. Implementing the right technology solutions can create efficiencies across a wide range of functions, such as human resources, finance, operations, and accounting while eliminating errors. Although many believe that automation and AI will eventually replace human jobs, the opposite, in fact, is true. As companies increasingly turn to AI and robotic process automation for rote activities, employees are elevated to more strategic assignments and empowered to become more efficient and productive. Private equity companies should prepare for the transition by ensuring their existing processes are best optimized to accommodate the new technology. Employees should also receive any necessary training that will allow them to upskill and work to enhance the company’s overall investment business.


Put the customer first

Companies are always thinking about ways to deliver maximum value to their clients and, as a result, drive growth. Increasingly, this means creating a customer experience (Cx) that is innovative, dynamic, and tailored to the individual. PE funds should prioritize the Cx journey, working with their existing portfolio companies to map the entire transition from buyer to repeat customer. This will likely require a technology investment to help segment customers and examine different behaviors and patterns of current and future buyers.

While acquisitions will always be a vital part of the PE environment, today’s booming market requires new and creative efforts to generate the best returns. Management should examine key areas for potential optimization such as clarifying roles and responsibilities, identifying areas of opportunity, and mitigating potential performance risks. By exploring internal opportunities for performance improvement, PE funds can create a more efficient and profitable business to best realize their long-term goals.

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