The Private Equity Example

What is called here the Private Equity Lens is summarized with the following question: « How can I increase cash flow over the next three to five years, and how can I boost the company’s franchise value at exit? »

Great article again from Bain & Company via Forbes, that you will find right here : The Digital Challenge Through A Private Equity Lens, and that suggested ours.

It's not a surprise to our readers that we strongly promote at IRRQuest^® the Private Equity knowledge, thinking and habits to be the best way to get the best out of any value creation initiative$... Best is best indeed!

In this article, Bain Insights' contributors Elizabeth Spaulding, Read Simmons and Nikki Ruklic join Olivier Rochet's thinking who details in his 2017 best seller Value is the World's leader how he has been inspired by the Private Equity industry to build an innovative fully integrated value framework :

• "Value management, or Value Creation management is the primary expertise of Private Equity. Therefore, it is always a good idea to have a deeper look at the Private Equity industry. Basically, there are 3 main pillars to manage Value Creation the best way: 
  1. Strategy (to make it simple but relevant as an example: choosing businesses, with a leading management team, that show a clear competitive advantage in a well-established market, with consolidation perspectives, through a profitable business model)
  2. Finance (negotiate the best possible entry price, leverage the acquisition with debt when it’s worth it, optimize working capital and finance operations through integrated and manageable reporting, etc.)
  3. Value drivers (here the list may be infinite! to make it simple, let’s give some high level examples: sales, branding, marketing, operational excellence, innovation, cost efficiency, talent management, integrated processes and tools that support value management, etc.; from your strategy you can frame a path that you can measure the impact on value creation in a 1-5 years time frame and adjust your expectations)"

Private Equity professionals usually are highly educated professionals. They followed the best executive education cursus, for most. Lots of them are MBAs. They own highly valuable knowledge. They belong to highly valuable networks. These together bring power in everything they do. No surprise then that Olivier, an HEC Paris executive MBA, looked deeply at the Private Equity industry when he was about to start the project back in 2010 :

• "When I started with the idea to build an integrated value framework, I wanted to: have a complete description of a business through its different capitals’ modeling and business areas, while articulating it so that it fits to an automation of both internal and external data that support business management. To turn you with a metaphor, just imagine you hire a Private Equity professional and an Operating Partner at the same time that provide you with the keys and the glasses to see further in the 3 horizons of growth and provide your organization with a collaborative platform to leverage your team’s focus and expertise to execute and create value."

With the digital times we are now and forward, everything has to be reconsidered with a fresh set of thinking, method and tools. This is how to keep your glasses uptodate! But do not imagine this is an elite thing that is either useless, or inaccessible. It is a matter of an investment in knowledge and practice to understand then master how to best leverage it. It is powerful.

Investing in the methods and tools that will help you look at it with the two complementary perspectives : today forward (how it is affecting NOW, and how to take advantage from it) and future back (imagine the future and extrapolate backwards to best position in the future). Just what IRRQuest® Value Management methods and tools provide our customers with.

• "Though Private Equity professionals may be experts in value creation, I would argue that any business owner, entrepreneur, CEO or CFO, should at least know, understand and take actions that will optimize their interests while being aware of the interest that represents a Private Equity partner to support and leverage the growth of their business."

Olivier pushes the model further while explaining that Value modeling leads to model the World, for - as he explains argumenting from both the vision and the details that make it - Value is nothing else than the world's leader. The integrated value framework can even be transposed to one's personal value management. Ultimately, there is a huge impact in Value, for everyone.

• "Private Equity has become more and more regarded as responsible investors, and ultimately – unlike a trade buyer - they will never play other way than growth with an investee."

The Private Equity industry is now pursuing an outreach purpose, that we fully support and contribute to, which leads to provide more opportunities to more people to be involved in the change, a change that in fine makes much sense, we believe..

I hope you enjoyed your reading, and may you wish, please add your comment. You’re always welcome to share your thought, whatever.

All the best