Maximizing Value Creation From Your Investment in Times of Uncertainty 6
PE / PORTCO LEADER ALIGNMENT
In the face of economic uncertainties, PE firms and portco leaders must pull together to create long-term value. They bring
different perspectives and strengths to the task-and those are not always aligned. In general, PE operating partners rightly
zero in on the first year of ownership-the critical first few quarters during which they and their portco counterparts need to
capture synergies and get a running start on value creation-and they admire the hard-driving leader who gets such results.
(But, the AlixPartners Annual PE Leadership Survey finds that 49% of PE operating partners say that portco leaders don't
have a great enough sense of urgency.) Portco leaders, for their part, emphasize team building, collaboration, and building a
strong leadership bench more than their investors do.
THE DIFFERENCES IN INCENTIVES AND MINDSETS CAN PRODUCE MISALIGNMENT-OR
CAN PRODUCE HIGH-ENERGY COLLABORATION. TO ACHIEVE THE LATTER, INVESTORS
AND OPERATORS SHOULD FOCUS TOGETHER ON THREE THINGS:
Maximizing Value Creation From Your Investment in Times of Uncertainty 6
It is important for PE firms and portcos
to stay in their own lanes, but there are
some areas where PE firms can play a
more active role in value creation than
they traditionally have. For example,
leading PE firms have facilitated
collaboration between portco leaders
for mutual learning and leveraging of
the collective scale of the portfolio. For
portco leaders, it is imperative to not
neglect incentivizing non-management
employees to unlock a groundswell
of bottom-up idea generation as
employees challenge the status
quo, learn from advisors, and retain
knowledge from the value creation
program. Operating partners and
portcos can make each other better
and more successful if they work
together to find ways of maximizing
through operational excellence.
PE leaders are typically well-familiar
with value creation programs that
encompass various levers for driving
EBITDA margin growth. Portco leaders
with no previous experience in being
under PE ownership may struggle to
implement value creation programs
that generate quick, comprehensive,
and substantial results. The mosteffective
programs are simple and
precise-and explicitly outline the
choices made by leadership. This
approach acknowledges important
nuances around governance, as well as
the specific context in which a program
is being implemented, such as the
economic headwinds that may affect
value creation results.
PE leaders are typically more inclined
to take bolder actions because they
have lesser attachment to established
practices. To motivate portco leaders
to be on the same page as PE owners,
financial incentives can be tied directly
to transformation outcomes that
portco leaders can control. General
outcomes, such as overall company
profitability, may be too heavily
influenced by economic headwinds
and uncertainties, which undermines
the effectiveness of transformationincentive
programs. Instead, specific
initiatives or projects that deliver new
value should be incentivized because
they represent known variables.
FRAMING
THE WHAT
UNDERSTANDING
THE HOW
AGREEING ON
THE WHO
INVESTORS OPERATORS
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