How Private Equity Can Unlock the Right Value-Creation Drivers.
To fully maximize investment value, private equity has traditionally focused on cost-cutting initiatives to drive returns. However, as access to real-time data and analytics are readily available, private equity and financial investors are now empowered by the ability to peel back the layers on an investment and identify where there’s unrealized value to be gained, or to mitigate areas of the business that are driving down value.
However, in addition to the pre-diligence of reviewing the financials and management of a prospective investment, private equity will need to be provided with real-time insights into the fabric of the organization, its culture and competitors.
PWC highlights the importance of why private equity and investment firms need to be “pulling the right levers to lock in real value creation.” In fact, “Private equity firms that begin planning for a deal as much as two years before an acquisition enables them to explore all the opportunities within the target business and its markets to develop a clear blueprint for realizing value.
Knowledge of the market and the asset are key, as is knowledge of the value-creation levers.
As per the chart below, while value creation is the day one priority for these investment firms, other factors are driving value up or down, such as operational stability, and customer and talent retention.
However, when we look at this chart through the lens of an overarching strategy centered around the brand, you can see how the components for creating value are actually interconnected and how each can positively impact the other, further demonstrating how talent and culture can potentially anchor operational stability while creating additional value.
Gaining Strategic Clarity Early On
The previous chart allows us to fully understand the impact of not having a clear strategy, messaging and mission. Remove any one of these and it can result in operational instability, loss of clients or customers, cultural challenges, and a revolving door of talent.
Culture has significant impact, whereby 57% of private equity dealmakers say cultural issues hampered value creation.
As discussed previously in this post, Why M&A Needs a Pre-Merger Cultural Roadmap?, M&A executives pointed to a failure rate of between 70% and 90%, “Some 95% of executives describe cultural fit as critical to the success of the integration.”
To fully understand how these are all entwined, it’s critical to ensure that there is a perfect balance of strategy, brand and marketing. To address this need, ScheinerInc. has developed a Brand Value Scorecard where the characteristics and tenants of the brand are given a numerical value
Enter The Brand Value Scorecard
This dashboard places a numerical value on the company’s overall brand health, but also breaks down the brand across nine categories, including brand messaging, marketing, digital and competitive context. The goal is to identify and prioritize the top three to five areas that should be immediately addressed to create value or to remove the barriers prohibiting value. Some of the categories include:
The Brand Value Scorecard would provide private equity firms with:
For private equity to truly have a much more holistic view of a potential or current investment, it would be advantageous to look beyond financials and management, and understand where the brand sits within the marketplace, with its customers and within the competitive landscape. Serving as pre-diligence and marketplace due diligence, the Brand Value Scorecard can enhance portfolio oversight and help to prioritize value creation.