Ever wondered what goes into a robust “Value Creation Plan”? Private equity firms aim for 3-5 times returns over 5-7 years, and the plan for achieving this can take various forms.
From a straightforward financial model aiming to triple revenue and EBITDA returns, to elaborate McKinsey-style strategies backed by extensive market mapping and industry research – the spectrum is wide.
In today’s challenging environment, middle-market private equity portfolios face headwinds from higher interest rates and inflation. The key to resilience lies in a tailored and potent value creation plan that aligns with both the company and the PE firm.
As one of my clients says, “Success is 1% strategy, and 99% execution. But you have to get the 1% strategy right to realize the returns of the other 99% of your efforts.”
So, what exactly is a Value Creation Plan? At its core, it encompasses:
1. Mission/Purpose: Why does the business exist?
2. Vision: What is the envisioned scope, scale, and nature of the future business?
3. Business and Financial Goals: Time-based achievements, including revenue and profit over the next three years.
4. Portfolio Strategy: Goals for growth, investment, harvest, or divestment within each business unit.
5. Go-to-Market Strategy: Identifying customer segments, geographies, products, and services, coupled with a detailed marketing and sales plan.
6. Operations, Technology, and Digital Strategy: Functional strategies and initiatives that execute the broader business strategy.
7. Organization and Talent Strategy: Management’s approach to aligning human capital and organization design with overall business objectives.
When facing economic and industry challenges, a strong Value Creation Plan is not just a necessity but a strategic advantage. It shouldn’t be too complex; it should be right-sized to fit the portfolio company and the PE firm.
What’s your strategy for value creation in your company or across your portfolio? Let’s talk.