Last week we had our 22nd global PE operating partner dinner. This event roams around the globe and so far had our dinners in New York, London, Beijing, Hong Kong, Singapore, Seoul, Tokyo, Sao Paulo. The primary purpose of the dinners is to bring together operating partners and experts focusing on value creation in the fast paced world of private equity and exchange ideas on what works best to accomplish that goal. Reflecting on the last few years a couple of themes are emerging recently in these discussions:
1) Procurement is getting more sophisticated
While several firms established operations / resources teams to improve elements of working capital and maximize free cash flow, only few firms have a repeatable and scalable engagement model for their portfolio. The strategies are limited to spend visibility and negotiated discounts and terms but contract compliance to these leveraged procurement arrangements still elude many. More sophisticated strategies involving cross-portfolio auctions and dynamic pricing are out of scope for most firms. Leveraged procurement is still very labor intensive in PE with GPOs and procurement consultants and limited use of modern marketplace and auction tools.
2) Web and mobile commerce tools are more common
Some PE firms explicitly focus on improving sales effectiveness with a broader implementation of multi-channel commerce strategies that can improve marketing and sales effectiveness but also open entirely new markets for their companies especially in low-tech industries. Surprisingly after a two decades of e-commerce, many portfolio companies have neither a comprehensive multi-channel platform nor a mobile marketing / sales approach in place to address an entire generation of customers.
3) Value creation levers are being commoditized
The strategies that are effective (like spend visibility and leveraged procurement) are highly commoditized and can neither give competitive edge to the portfolio companies nor differentiate the GP’s value creation approach in the eyes of the LPs. More importantly as procurement tools in the market mature, the procurement value creation opportunities in new targets will be less significant as the companies will have had access to GPOs and e-procurement tools as effectively as the GPs.
4) Great value creation innovation in emerging markets
Many mature market GPs look to their peers in the same markets for insight and best practices. As we worked with many firms, I noticed that some of the most creative value creation ideas will come from markets where management talent and workforce quality is less predictable. In places like China, GPs implement technologies like mobile commerce at a much faster rate to leapfrog the ineffective processes and work around the cost and churn of hyper-competitive talent markets.
What is this blog?
These are some of our insights along our value creation journey in private equity.
Instigator: Tamas Hevizi
- Value Creation 2.0 – The Quest for a Better PE Alpha
- Persistent Trends in Value Creation
- Macro Trends and PE Value Creation
- Why Can’t Management Outperform PE?
- Will China Transform Operational Value Creation?
- Green is the Color of Money
- Any Operating Model Could Work
- PE Group Purchasing makes Headlines
- Awards for PE Operational Excellence
- Great Books in Value Creation