The Ins and Outs of Performance Improvement
In the existing climate of challenges and uncertainty, never before has performance improvement been such a key driver to post-acquisition value enhancement. Market appreciation, leverage and arbitrage have taken a back seat and, for many funds, running portfolio companies efficiently has become the primary investment strategy. The adverse impact of the tightening credit market and the enforcement of more restrictive covenants have squeezed liquidity and profit, forcing private equity firms to review value creation methodologies as well as their exit strategies, particularly with a lull in Initial Public Offering (“IPO”) activity.
Consequently, the emphasis has moved to performance improvement. Whilst this is by no means a new concept, it now plays a pivotal role in value creation. The required core competencies have shifted from delivering short term growth to internal restructuring and operational improvement, thereby placing a premium on operational expertise, which raises the question – what is the most appropriate and cost effective operating model? Are in-house resources the way to go or does the flexibility and variable cost of external advisors provide a better solution? This question is applicable not only to the US and Europe, but also to Asia.