Realising full potential in private equity portfolio companies

At its core every investment thesis aims to deliver value. Value creation or alpha in a private equity portfolio company comes from a range of sources, but one primary source is scaling while others are contracting.

Alpha on entry such as buying well, sector selection, deal sourcing, has traditionally contributed meaningfully but is increasingly being competed away with the abundance of capital / dry powder, and high priced markets. Multiple expansion at exit contributes meaningfully, but is largely market driven (beta, not alpha), although timing and exit channel selection (IPO vs. strategic vs. secondary) can drive incremental returns.

Increasingly, operational value creation during the hold period is the largest and most persistent source of alpha in private equity today. Many sponsors and studies suggest c.50-60% of value creation now comes from operational improvements during the hold period versus c.20-30% historically when leverage dominated.

Step 1: Develop a Value Creation Plan (VCP)

The foundation of hold period alpha is a rigorous, quantified Value Creation Plan developed during due diligence and finalised in the first 100 days.

Key elements:

• Identify Commercial, Operational and Capital improvement levers with specific dollar targets
• Set clear KPIs, milestones and accountabilities tied to each lever
• Align the leadership team on the strategic, operational and financial roadmap to full potential

Why it matters: Most of the top 20 global private equity firms based on AUM leverage Value Creation Plans; studies note a positive correlation between superior returns and the creation of a revised management plan with new KPIs¹.

Step 2: Align Management and Governance

Ensure the leadership team and board structure can execute the plan.

Key actions:

• Assess management within the first 90 days
• Implement management equity incentives tightly aligned with VCP outcomes
• Build an active board with sector operators, not just deal partners
• Establish a monthly or quarterly operating cadence with clear accountabilities

Why it matters: Studies find that general partner and board engagement is the single largest driver of operational alpha¹.

Step 3: Drive Commercial & Revenue Growth

Top line growth has become a primary alpha driver, particularly through targeted pricing, sales, segmentation, and expansion.

Key levers:

• Pricing optimisation (often the fastest, highest ROI lever)
• Sales force effectiveness (‘Go-to-Market’ design, incentives redesign, CRM discipline)
• Customer segmentation and cross-sell / upsell programs
• Product and geographic expansion
• Digital channel optimisation

Why it matters: c.71% of post-investment PE deals identify increased revenue / demand factors as a key source of value².

Step 4: Execute Operational & Cost Improvements

Margin expansion through structural cost and productivity gains.

Key levers:

• Procurement and spend optimisation (c.5-10% addressable spend reduction)
• Manufacturing and operations productivity (lean, automation, footprint rationalisation)
• SG&A right-sizing and shared services
• Technology and digital transformation (ERP modernisation, analytics, AI)

Why it matters: c.49% of post-investment PE deals attribute cost reduction as a key source of value².

Step 5: Consider Strategic M&A

Inorganic growth is a dominant alpha driver, particularly for platform investments.

Key actions:

• Identify a proprietary M&A pipeline during diligence
• Execute multiple arbitrage (acquire smaller targets at lower multiples)
• Drive synergy capture (cost and revenue) through disciplined integration
• Use bolt-ons to expand geography, capabilities, or customer base
• Reposition the platform for a higher exit multiple (scale premium)

Why it matters: c.50% of post-investment PE deals identify follow-on acquisitions as a key source of value².

Key success factors

Key success factors across these five steps include: 

Working in tandem, these five steps and key success factors can help to create a flywheel value creation effect where full value potential is realised.

PwC’s Rapid Value Delivery team helps clients across all five steps and key success factors above and offers holistic solutions focusing on pace, insight and value at every life stage of a portfolio company:

Across the portfolio company lifecycle, our approach to Rapid Value Delivery and value creation canvases all Enterprise Value levers: 

Commercial Opportunities 

1. Under Indexed Geographies 
Where may there be opportunities to lift our sales in under-penetrated regions using geospatial targeting; which specific high-value postcodes or regions may be underweight with growth potential? 

2. Range Optimisation  
How can the range of service categories or products be optimised further to drive value uplift; which strategies may be implemented to accelerate growth or cross-sell in underweight high-value categories? 

3. Pricing Optimisation  
How may the use of advanced pricing analytics drive margin accretion across the customer cohorts; which specific low value customers or segments may be defensibly targeted with a pricing and discounts reset? 

4. Channel Optimisation  
How may the current sales and distribution channel mix be optimised further (e.g. direct to customer, distribution partners, etc); what steps may deliver favourable value accretion in optimising channel mix? 

5. Sales / G2M Optimisation  
What’s the current maturity in the sales and business development processes and teams by segment and market. How can the approach to sales, winning new and retaining existing business be enhanced?

Operational Opportunities 

6. Process Optimisation 
How can the processes across the value chain be optimised further? What benefits can be extracted through incremental process improvement and or automation? 

7. Procurement Reset 
How effective is the sourcing capability at driving margin accretion (supplier breadth, rebates, payment terms); how may procurement analytics across multiple sourcing strategies help to create incremental competitive advantage? 

8. Supply Chain Optimisation 
How may the current model be enhanced to optimise logistics/supply chain costs; where may a supplier reset and or technology help access improvements in logistics/supply chain costs and cycle times? 

9. Zero Base Reset of G&A
What is the current General & Admin organisational structure and how is this helping drive success; how may the G&A operating model be enhanced across Finance, HR, IT, etc? 

Capital Opportunities 

10. Working Capital Optimisation
How do current inventory, payables and receivables levels compare with internal and external benchmarks? how may working capital management & processes be enhanced across the supply chain? 

11. CapEx Optimisation 
How do current capital expenditure spend levels compare with benchmarks; which pockets of operating expense may defensibly be capitalised to lift run-rate EBITDA (e.g. project labour); how may investment decisioning processes be optimised? 

12. Non-Core Investments 
Which assets, business units, or investments fall outside the core strategic focus; what’s the opportunity cost of continuing to hold them versus divesting and redeploying that capital into higher-return core growth initiatives? 

Our value proposition and key points of differentiation in a Rapid Value Delivery and broader value creation context include:

Through this proven Rapid Value Delivery and broader value creation methodology, we help portfolio companies accelerate momentum towards full potential, achieving substantial Enterprise Value accretion independent of the macro environment and broader market conditions.

Set out below are a few examples of how we’ve assisted businesses in identifying and delivering value creation initiatives using our Rapid Value Delivery methodology.