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Last week I posted on the general value creation levers PE firms focus on to create value in their portfolio companies.   While the levers will differ by company and industry I believe there is a playbook out there PE firms are following.  I discussed this with one of our PE clients this week and got an interesting response.  He is a PE operating partner focused on technology initiatives in the portfolio.  Below is his ranked response to the question “what do you think are the top value creation levers you typically focus on”:

–          Technology infrastructure

–          Security – technology as well as people and processes

–          Sales force effectiveness

–          Pricing

What I found most interesting about the discussion was the focus on top line growth related levers, they’re not the standard process efficiency, cost cutting, or shared service initiatives you would expect from an IT professional.  He said the focus on technology infrastructure as the number one priority is to ensure the business has the foundation for growth. 

This discussion reminded me of another paper by Booz on what PE firms are doing for top line value creation and organic growth.  The paper mentions similar levers like category evaluation and expansion, sales force effectiveness, and pricing.  According to the paper, “The Next Winning Move in Private Equity” PE Firms will need to do three things to capture additional value from organic growth; add new growth capabilities, rebalance how they engage with portfolio companies, and lastly find ways to make growth net free. 

How a firm attacks these three areas will depend on the size and focus of the firm and is similar to the considerations for how a firm would build out its operating team.  So how does/should a PE firm balance its operating team to focus on growth and operating strategies?  At what size and number of portfolio companies can a firm afford to invest in these capabilities internally vs outsource?  Does a KKR Capstone approach, with dedicated operating partners that focus on growth and operational improvement, feasible for a mid market firm like Riverside?  The market is becoming more and more competitive for deals and firms are also being forced to differentiate for LP investment while also needing to drive real value and generate the super returns LP’s expect.  Figuring out the unique balance and focus of the operating team will be more and more critical to a firm’s survival.


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