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How Private Equity Firms Can Actively Support their Portfolio Companies

Published:
December 22, 2020
Reading Time:
7 minutes
Leo Saini
Experienced copywriter who spends a lot of money at restaurants and regrets it later.

Did you know that private equity firms provide way more than just financial investment to their portfolio companies?

A lot of professionals who haven’t worked with one might have several misconceptions about a private equity firm’s role.

Some think that these firms simply invest money into a company and do nothing else, just like a real estate investor invests in properties.

Well, that’s far from the truth. In this article, we’ll discuss how private equity firms support their portfolio companies and help them reach their true potential.

1. Hiring the Right Personnel

Part of the reason why some portfolio companies might be underperforming is the lack of right talent. Private equity firms are used to noticing this, and they can quickly identify the skill gaps that need to be filled. Whether it’s hiring freelance consultants or an interim CEO, the sooner the right people are brought on board, the better it is. And the best part is: Private equity firms no longer have to go through hundreds of CVs to find full-time employees or freelance consultants. The advent of recruitment agencies and online consulting platforms have made the hiring process a heck of a lot easier.

For example, if a private equity firm needs help with the content strategy for one of their portfolio companies, they could approach a consulting platform that has access to hundreds of talented freelance consultants. The process is quite similar to hiring a full-time employee through a recruitment agency. One can simply approach the consulting platform and have a confidential chat about their requirements. Then a representative of the consulting platform can provide profiles of top candidates to private equity firms from which they can choose the best one. So convenient, isn’t it?

“I’m convinced that nothing we do is more important than hiring and developing people. At the end of the day you bet on people, not on strategies.” – Lawrence Bossidy

2. Helping Portfolio Companies Prioritize Tasks

Sometimes, less is more. A lot of times, underperforming companies are not able to produce the desired results because they are trying to give their 10% to 10 different tasks instead of giving their 100% to the most important task. Private equity firms can use their experience in order to help companies decide what to focus on.

Let’s consider an example to understand this better. Suppose there’s a company whose profits have plateaued since the pandemic began. However, they’re still employing numerous resources to work on an internal IT project that is not going to produce any profits in the short term. This is when experienced PE professionals can step in themselves, or seek a consultant’s help, to pause unimportant tasks and focus on the ones that are necessary for immediate revenue generation.

3. Upgrading and Future-Proofing Companies Through Digital Transformation

Whether it’s better data management or exceptional customer experience, digital transformation is not just necessary these days, but absolutely essential to ensure that companies do well in the ever-changing business landscape. Private equity firms can leverage their network or contact online consulting platforms to find the best freelance consultants who specialize in digital transformation.

Digital transformation is a very broad term and there are several branches within it that need to be explored. For instance, digital transformation can be used to change a business’s processes. Well, this can be better understood with a real-life example. Domino’s, a multinational restaurant chain, came up with Domino’s Anyware, a system through which customers can order their pizza from anywhere — even using Slack, Facebook Messenger, or Twitter. How fascinating! According to Fast Company, 60% of Domino’s sales in 2019 came through digital orders and their stock price increased by 22%. PE firms can bring a similar increase in their portfolio companies’ value through digital transformation.

freelance consultants, How Private Equity Firms Can Actively Support their Portfolio Companies

Constantly Strategizing Ways for Expansion and Growth

Private equity firms are growth-oriented and always looking for a way to expand businesses that they invest in. Sometimes, portfolio companies might feel stuck when their growth gets plateaued. However, focussing on the same products/services and having the same people around might not be the best recipe for growth. Private equity firms can analyze a company’s situation and create plans to make things better right from the get-go.

Once again, an example is what makes a point clearer. Suppose a company has multiple retail outlets around the country but only the ones in certain cities are profitable. On employing a consultant, it’s found that the reason why some outlets aren’t generating enough sales is that people living in those areas would rather order online. By having this insight on customer behavior, the company could focus on building an e-commerce store and shut down outlets that aren’t generating a profit.

4. Investing in State-of-the-Art Tools for Portfolio Companies

Operating a business can be challenging. However, the right tools and technology can significantly improve performance and reduce overhead expenses. When portfolio companies do not have any external support, whether intellectual or financial, it can be difficult for them to choose the right tools for their business.

And even if they know exactly what equipment they need to scale the business, the situation can still be challenging due to financial constraints. Thus, businesses can get stuck in the ‘Our business is not growing....because we don’t have the right tools...because our business is not growing...’ cycle.

Thanks to private equity firms, portfolio companies can get financial help as well as advice on how and what equipment to buy to boost productivity, increase sales, and decrease operational costs.

Conclusion

There are many ways PE firms can help companies at various steps in their journey. Portfolio companies can create a highly competent team where full-time employees, interim managers, and freelance consultants work hand in hand to boost the company’s value. PE firms can also help with prioritizing the right tasks and make the most out of available financial and human resources.

Being naturally growth-minded, private equity firms help create new strategies to take companies to a level where they cannot reach on their own. And last but not least, by investing in the right tools and equipment, PE firms can give companies a big push in the right direction.