How do private equity firms add value?
Private equity adds value to a company in a variety of ways. Thorough due diligence sheds light on a company’s strengths and weaknesses alike and with it comes a sound initial investment rationale. By targeting growth sectors and markets, private equity investors can focus on creating better revenue generation and greater operational efficiency. In addition to cost reduction, organic growth is now increasing in importance. It is also critical to establish a structure in which both investors and key managers share a common ownership vision, and are motivated to maximise value. Active ownership, rapid organisational change and powerful incentive schemes are all part and parcel to the hands-on governance model that includes constant and keen oversight, defined goals and timing, disciplined decision-making and deep resources to match. Ultimately this approach leads companies owned by private equity to outperform similar publicly-owned companies with relative benchmarks.
