Driving value creation in private equity

In the ever-evolving landscape of private equity (PE), the quest for value creation has never been more critical. The recent report, "Delivering value: How leading Private Equity firms are using data and analytics to drive value creation," delves into the strategies and methodologies that top PE firms are employing to enhance their asset resiliency and drive substantial value.

For over a decade, the PE value equation was straightforward, with low-interest rates and abundant capital fueling a frothy M&A market. However, the current environment presents new challenges. Interest rates are at their highest in more than a decade, IPO markets have slowed, and valuations have tumbled, creating significant hurdles for PE managers. The report highlights how leading PE firms are navigating these challenges by leveraging data and analytics to drive value creation.

One of the key insights from the report is the shift from traditional value levers, such as asset governance and regulatory derisking, to more direct operational excellence initiatives. PE firms are now focusing on unlocking sustainable EBITDA improvement and working capital value creation opportunities. This involves transforming supply chains, pricing, engineering, and design functions to achieve stronger and more sustainable results.

The report also emphasises the importance of data in driving operational efficiencies. While buy-side professionals often struggle with a lack of data from their targets, sell-side professionals face challenges with siloed and inconsistent data. Leading PE firms are overcoming these obstacles by adopting a data-driven approach to due diligence and value creation. By leveraging advanced analytics and technology, they can gain a granular view of their targets and identify quantifiable value creation opportunities.

For instance, a data-driven approach allows PE managers to scrape multiple publicly available data sites to accurately assess a target's organisational structure, employee capabilities, and competitive positioning. This level of detail enables more robust due diligence and enhances the equity story for potential acquirers. The report provides examples of how KPMG firms have successfully implemented these strategies, such as identifying EBITDA improvement opportunities for a PE-sponsored portfolio company.

Moreover, the report underscores the need for a transformation in the way PE houses and portfolio companies approach value creation. The tools and technologies available today have matured, offering unprecedented insights and opportunities. By adopting a data-led approach, PE managers can balance other key priorities, such as resilience, sustainability, and customer focus, alongside pure EBITDA returns.

KPMG firms have developed a proprietary data-driven approach to value creation that combines insights, operational experience, and advanced analytics. This approach helps buy-side and sell-side players identify, quantify, and execute significant value creation opportunities. The report showcases how KPMG specialists have helped clients achieve substantial cost reductions, optimise networks, and enhance valuations through data-driven strategies.

In conclusion, the report "Delivering value: How leading Private Equity firms are using data and analytics to drive value creation" provides valuable insights into the evolving landscape of private equity. By embracing data and analytics, PE firms can navigate the current challenges and drive substantial value for their investors.