How PE Firms Can Better Execute Operational Strategies with Portfolio Companies

In today’s competitive environment to create sustainable value, many private equity firms have developed a more active, operational approach with portfolio companies.  Although many PE firms have made progress over the years in developing an operational strategy, most firms still struggle to consistently execute and implement these strategies.

Why PE firms struggle to execute 

In Bain & Company’s 2015 Global Private Equity Report, Bain reveals in a survey that while more than 50% of PE firms have an operational strategy with portfolio companies, “fewer than 5% apply the model consistently—and with the depth and quality intended—with each portfolio company they own” (pg. 53).

PE firms may struggle to execute because they often lack the operational resources and infrastructure to systematically implement their strategic plans.  Most PE firms will have their investment professionals or in-house consultants help set operational strategies, but then may rely heavily on outside service providers for implementation.

This leads to less control and consistency to assert the necessary focus and attention needed to help portfolio companies over a sustained period of time.  In addition, using several outside third parties eliminates the benefits that come from centralization of resources and cross-functional collaboration.

How to deliver consistent operating strategies

One of the most effective ways to overcome this issue is having a dedicated group of service companies controlled and owned by the PE firm, what we call a shared services group.  This creates a large pool of cost-effective resources that can provide a full set of services to regularly apply operational strategies.

A shared services group can assist portfolio companies through the entire life of a deal: from consulting on a company’s goals and strategy, to developing and implementing solutions, and to providing ongoing resources to ensure execution and continuous improvement.

Since the PE firm controls and oversees this group, this becomes a repeatable model of sustained active engagement and focus with portfolio companies.

Benefits of a Shared Services Group

Highcrest has built its own Shared Services Group that is the first of its kind in private equity.  We have seen many benefits from our Shared Services Group as they provide a consistent, operational approach and resources to our portfolio companies.

The group is well coordinated as each entity regularly works together and collaborates on various projects.  There is a strong alignment of interests because we all have an economic interest in creating long-term value in our portfolio companies.  It’s a true partnership in working for the success of a company.

Ultimately, this model allows us to regularly execute operational strategies with the “depth and quality” needed to help create sustained value in companies.

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