How Private Equity Firms Can Actively Support their Portfolio Companies
Did you know that private equity firms provide way more than just financial investment to their portfolio companies?
A lot of professionals who havenât worked with one might have several misconceptions about a private equity firmâs role.
Some think that these firms simply invest money into a company, just like a real estate investor invests in properties.
Well, thatâs far from the truth. In this article, weâll 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 underperform is the lack of right talent. Private equity firms notice this, and they quickly identifies the skill gaps that it need to fill. 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 platform have made the hiring process 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, isnât it?
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. Private equity firms can use their experience in order to help companies decide what to focus on.
Letâs consider an example to understand this better. Suppose thereâs a company whose profits have plateaued since the pandemic. However, theyâre 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 consultantâs 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
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 change a businessâs processes. Well, this can be better understood with a real-life example. Dominoâs, a multinational restaurant chain, came up with Dominoâs Anyware, a system through which customers can order their pizza from anywhere â even using Slack, Facebook Messenger, or Twitter. How fascinating! According to Fast Company, 60% of Dominoâs sales in 2019 came through digital orders and their stock price increased by 22%. PE firms can bring a similar increase in their portfolio companiesâ value through digital transformation.
4. 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, focusing 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 companyâs situation and create plans to make things better right from the get-go.
For example, Suppose a company has multiple retail outlets around the country. But, only the ones in certain cities are profitable. On employing a consultant, itâs found that the reason why some outlets arenât generating enough sales is that people living in those areas would rather order online. By having this insight on customer behavior, the company focused on building an e-commerce store and shut down outlets that arenât generating a profit.
5. 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 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 âOur business is not growing....because we donât have the right tools...because our business is not growing...â 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 companyâs 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 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 give companies a big push in the right direction.
