The current dealmaking environment is presenting its challenges to private equity firms but some general principles of how to create value can still lead to successful exits in a downturn. So says a group of nearly 100 senior investment professionals who were recently surveyed for an industry report on best exit strategies.
Baird, the Chicago-based investment bank, released its PE Best Exits: Driving Value Through Changing Markets report. The firm highlights some of the data, strategies and practices that private equity firms claim are indicators and drivers of a successful private equity exit over the last 18 months.
“Every situation or almost every situation is separate unto itself,” says Les Cheek managing director, head of global financial sponsors group. “The strategy around how you’re going to exit; how you’re going to position the company; what the breadth of the buyer universe is; all those things I think are considered afresh at every exit.”
The survey respondents’ median exit multiple was 15x of invested capital, and their responses demonstrated several levers to create a must-own asset.
The most frequently cited value driver of best exits at 78 percent was the strengthening of management teams. Additionally, one-third of respondents attributed technological transformation as a top value driver through the improvement of operating efficiencies, advancing sales and marketing and supporting decision-making.
Cheek says improving the management team goes beyond C-suite executives. It’s important to build depth to the team and focus on critical functions that can drive change. Oftentimes, Cheeks says, positions like the head of sales, IT, marketing, and other operational leaders are the true drivers of change.
“Thinking about a business that has an ineffective or less than productive sales force; a new director of sales and marketing can really pivot the trajectory of a sales team,” Cheek says. “New management can be critical and can really change value.”
What other areas do you focus on as key value driver toward an exit? Let me know your take at [email protected].
–Cole Lipsky
