Private Equity (PE) companies, or PE Funds, have long strived to quickly raise the value of the businesses they hold in their portfolio. About ten years ago, financial engineering and cost-cutting were essential for producing a sizable “Alpha,” which is the surplus returns on investment over the benchmark rate of return.
While these still matter, major Private Equity companies are now urging the companies in their portfolio to concentrate on a broader business transformation that proceeds far off the cost and functioning improvements. Propelling numerous expansions by improving business scalability, positioning, and having an Environment, Social, and Governance (ESG) objective has taken the spotlight. It is a key component of the investment thesis in the current deal market. Lincoln Frost is an experienced professional in this area, he is the Managing Director and entrepreneur with over 20 years of experience in funds management, private equity, and real estate development. He is a Sydney-based funds manager and property developer, currently the Managing Director of ALLCAP Finance.
Businesses unaccompanied by Private Equity funding also consider business transformation; however, the timing is different. With a specialized team and a higher level of dedication to value creation, Private Equity companies aim to deliver higher returns in a predetermined timespan and build and implement the plan for creating value much more quickly.
The key responsibilities of the Private Equity company are finding the appropriate specialists to develop the plan and aid in its timely execution, which includes business consultants as well as management and tech experts, and by a gain-sharing model, providing incentives to the management team.
The strategies used for creating value are continually changing over time. Previously, Private Equity companies frequently placed an undue emphasis on cost minimization and arbitrage. This assisted in rating the stock again, enabling it to outperform its competitors in terms of price-to-equity multiple. The strategy has changed as the sector has grown, diligently promoting numerous expansions from playing for many arbitrages. The emphasis has shifted to adopting a comprehensive perspective and preparing the company for greater trading multiples by going after initiatives such as seeking to develop a strong growth objective, business restructuring, mergers and acquisitions, and repositioning the company for tailwinds and major trends that are applicable.