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PE pivots to portfolio value creation

Without market conditions to support robust dealmaking in 2023, PE portfolio performance will be top of mind.

The PE industry has increased its focus on portfolio value creation in recent years, while still leveraging M&A. But in 2023, without market conditions to support robust dealmaking, PE portfolio performance will now be top of mind.

Cost reduction is key, but growth is an even higher priority in the coming months, according to our survey and our conversations with global PE executives.

PE firms with more sophisticated data analytics have the insights across their portfolios to identify growth opportunities during the downturn.1 They are considering long-term levers such as new business models, product and service offerings, and go-to-market approaches.

These moves will complement the more tactical performance improvement levers we expect to see used this year, such as noncore headcount reduction, vendor consolidation and contract renegotiation, facilities rationalization, and working capital optimization.

Among the value drivers are several emerging themes:

Automation and offshoring strategies against the labor shortage.

The postpandemic labor shortage is expected to continue through and after the current economic challenges, which is unique compared to historical economic downturns. Necessary jobs will remain unfilled, and high employment costs will eat into margins as talent commands a premium.

Digitization and automation are needed to transform the workforce model and introduce efficiencies. At the same time, properly offshoring non-core positions can relieve the pressure of labor shortages and reduce costs. Both efforts require organizations to balance the redesign of their operating models with maintaining current operations.

At the fund level, private equity managers are taking a fresh look at their portfolios to create real value. That means finding where and how to integrate assets, develop digital platforms, leverage data analytics, achieve automation and scale, and create new offerings.

Price optimization across product and service offerings.

Nearly half of U.S. deal makers we surveyed (48 percent) identified price optimization as a top area for improving revenue synergies in 2023, tied with organic customer growth strategies.2

Companies are still trying to make up for margin compression during the pandemic due to labor and materials costs. Now, in an inflationary environment, they need to adjust pricing strategies to share some of the anticipated high costs going forward.

KPMG 2022 Year-End M&A Survey, December 2022

Top-ranked priorities for portfolio companies in 2023: 


ranked performance improvement through cost reductions in the top three.


ranked performance improvement through growth initiatives in the top three.

Untapped value creation through ESG.

Until recently, environmental, social, and governance (ESG) strategies often provided more reputational value than financial value, particularly in the U.S. market. However, there has been a sharp change in attitude toward ESG’s contribution to value, such as its ability to help drive revenues through customer growth and product and service development.

Going forward, ESG principles will play a role in almost every transaction. Executives will need to consider how to unleash the value that can be created through ESG-focused strategies. That includes leveraging diversity, equality, and inclusion (DEI) to implement a better workforce model and cost structure, and controlling profitability loss through a stronger risk governance framework.

ESG has finally been elevated from a risk management exercise to a corporate-wide strategy designed to increase value through meeting stakeholder demands.

Greater profitability and healthier portfolio companies.

A possible market correction in 2023 could squeeze out the underperformers. This will compel companies—many with the help of private equity—to implement a better capital structure, technologies, and operating model for improved profitability.


1Source: Glenn Mincey and Carole Streicher, “KPMG: Value creation becomes a top priority,” Private Equity International, December 1, 2022

2Source: KPMG 2022 Year-End M&A Survey, December 2022

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Paul de Janosi
Advisory Managing Director, Strategy - PDT, KPMG US

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