Improving Operations is the Greatest Source of Value for Private Equity
Private equity is about building and growing companies not breaking them apart. While invested in portfolio companies, private equity firms create value and strengthen companies by providing operational and managerial expertise to their portfolio company operations. Simply put, private equity invests in bricks and mortar, employees and management teams, and entrepreneurs and ideas. While some have accused private equity of being quick flip artists, a study by the World Economic Forum found that most private equity investments are held for over five years.
The private equity model relies upon firms providing both capital to fund growth and also knowledge and structure to improve portfolio company operations. Research shows this to be the case. A 2012 study by the Boston Consulting Group finds that operational improvements are the primary source of value creation for private equity. Furthermore, as deal prices have increased, more focus is devoted to making portfolio companies grow.
The solutions and expertise provided by private equity firms help portfolio companies achieve greater value creation. As a result, private equity-backed companies outperform public comparables in numerous categories including profit growth, employment growth, and productivity.
To see some examples of private equity improving operations, visit the success stories below:
- Positioning a U.S. Manufacturer for Long-Term Growth
- Putting Union Employees Back to Work
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