By Peter Hlavin

Improving Private Equity Returns – Don’t leave money on the table

In this post, we explore:

  1. What are the steps towards maximizing shareholder value in a private equity transaction?

  2. What should a private equity investor be doing 1st, 2nd, 3rd during their investment lifecycle?

  3. How to focus efforts in a targeted approach to expand EBITDA, reduce working capital, and significantly improve sales growth trajectories.


Does this situation sound familiar?

In the private equity world, it’s all about the deal.  When a major deal is closed, it is rightly celebrated by the team that worked hard to make it happen, as it should be.  But after the champagne corks are popped and accolades traded, it’s time for the real work to begin, and this is where trouble often starts.  A myriad of issues in the newly acquired firm suddenly crop up, including operational issues.  The PE executives who did the deal are on to other opportunities, and these operational problems get passed from one person to another in the portfolio company’s management team – a classic case of “hot potato.”  And this unproductive cycle continues as the clock keeps ticking toward the eventual sale of the company in three to five years, when the PE firm hopes to receive a solid return on its investment. In our work with PE firms and their portfolio companies, we have seen this scenario play out time and again.  By failing to fully attend to the operational improvement aspects of the deal, PE firms are unintentionally undermining the value of their acquisitions—all too many PE firms focus on quick, short term EBITDA gains and stable market share growth to help define success, but many are ultimately disappointed by the value at exit, knowing that it could have been greater had they been able to tackle all the opportunities for improvement.

Lacking a “Quality of Operations” Report?

The seeds of this scenario are sown during the early stages of the deal.  Most PE firms perform due diligence upfront to identify possible areas of risk as well as potential areas for adding value. All too often, this due diligence falls short of the level of depth and detail needed to truly maximize the potential value of the acquired firm. Typically, PE firms’ due diligence lacks what we call a “Quality of Operations Report.” This is an extremely in-depth look at the operational health of the target firm spanning supply chain, operational efficiency, and the health of the product development portfolio. The Quality of Operations Report is a vital complement to the traditional Quality of Earnings report focused on the company’s financial health, and should be included as a fundamental element of every deal. The Quality of Operations Report, which identifies both risks and opportunities in an acquisition target’s operations, should serve as major input to the 100-day plan a PE firm creates as a post-close game plan to ensure essential actions that need to happen immediately are identified and, importantly, assigned responsibility. After the 100-day plan has been implemented, a PE firm and its portfolio company management team should turn their attention to actions that can significantly improve operational performance over the next few years. By following this blueprint for operational excellence, PE firms can dramatically improve the value of an acquisition, resulting in a significantly higher payday at exit.

Operational Excellence Blue Print – 3 steps to create value

This blueprint includes “three pillars” of operational excellence that should be executed in a phased approach after the 100-day plan is completed.

Operational Value Enhancement Model - Copyright TriVista 2014

Phase 1: Lean Manufacturing

The first phase, done six to nine months after the deal closes, is the cleanup phase, in which the company implements operational best practices and improvement initiatives—including Lean and Six Sigma—within the “four walls” of the organization to reduce waste, inefficiency, and costs.


TriVista worked with a leading industrial equipment manufacturer to boost capacity and increase output by implementing Lean principles to utilize the existing facility and resources more efficiently. The client, a private equity-owned, $65 million portfolio company, achieved some impressive gains, including a work-in-process reduction of 25%, cut in manufacturing cycle time by 39%, reduced product movement from 20-60% depending on SKU, and increased available floor space by 25%.

Phase 2: Supply Chain Optimization

Shortly after the cleanup phase has begun, the company should begin focusing on optimizing its supply chain, both upstream to suppliers and downstream to customers—through such initiatives as strategic sourcing, logistics network optimization, and…

To read the complete article, please download the file by clicking the link in the right column.

For more information on maximizing returns by enhancing value through operational improvements,
please contact us at or call 949-218-4830.

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About the Author:

Peter Hlavin

Director, Business Development
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