{"componentChunkName":"component---src-templates-page-js","path":"/private-equity/","matchPath":"/private-equity/*","result":{"pageContext":{"matchPath":"/private-equity/*","data":{"id":"playlist-13--new--","seo":{"title":"Private Equity","description":"The private equity industry increasingly looks beyond the P&L to create multiples on exit. A focus on talent, technology and ESG are key differentiating factors driving value.","image":"https://impact.economist.com/projects/real-world-strategy/images/share13.jpg"},"link":{"id":"new--playlist13","basePath":"/private-equity/","path":"/private-equity/","type":"brand_ey_parthenon","img":{"thumb":"/images/playlists/thumb_pl_13.jpg","full":"/images/playlists/full_pl_13.jpg","alt":""},"label":"Private Equity","pretitle":"Private Equity","title":"Corporates can learn from PE’s value creation strategies"},"menu":[{"id":"playlist8","basePath":"/ceo-video-series/","path":"/ceo-series/","type":"brand_ey_parthenon","watermark":"ceo","img":{"thumb":"/images/playlists/thumb_pl_08.jpg","full":"/images/playlists/full_pl_08.jpg","alt":""},"pretitle":"Strategy in Action:<br/>A CEO Series","title":"Watch Now"},{"id":"playlist11","basePath":"/geostrategy/","path":"/geostrategy/1/","type":"brand_ey_parthenon","img":{"thumb":"/images/playlists/thumb_pl_11.jpg","full":"/images/playlists/full_pl_11.jpg","alt":"Winding valley with green and brown hilly terrain. Light shines on China's Zhangye Danxia colourful rainbow mountain range."},"label":"Geostrategy","pretitle":"Geostrategy","title":"How do you adapt to a new geopolitical&nbsp;era?"},{"id":"playlist10","basePath":"/esgstrategy/","path":"/esgstrategy/1/","type":"brand_ey_parthenon","img":{"thumb":"/images/playlists/thumb_pl_10.jpg","full":"/images/playlists/full_pl_10.jpg","alt":""},"label":"ESG Strategy","pretitle":"ESG Strategy","title":"How do you embed sustainability into traditional corporate strategy?"}],"content":{"brand":"brand_ey_parthenon","sidenav":[{"label":"Professional perspectives","anchor":"professionalperspectives"},{"label":"Insights","anchor":"insights"},{"label":"Case studies","anchor":"casestudies"}],"bg":{"type":"image","hideLogo":true,"addGradient":true,"desktop":{"src":"/images/static-hero/static-13.jpg"},"mobile":{"src":"/images/static-hero/static-13-m.jpg"}},"card":{"showDots":false,"forceWidth":430,"title":"PE’s strategy for increased returns","desc":"Corporates can learn from private equity's value creation strategies"},"sections":[{"id":"professionalperspectives","theme":"lines-bg--offset","blocks":[{"type":"CopyBlock","content":{"title":"Value creation in a challenging market","paragraphs":["The private equity industry increasingly looks beyond the P&L to create multiples on exit. A focus on talent, technology and ESG are key differentiating factors driving value."]}},{"type":"VideoBlock","content":{"id":"video","src":"https://players.brightcove.net/1153191510001/default_default/index.html?videoId=6352599186112","title":"Playlist 13"}},{"type":"CopyBlock","content":{"paragraphs":["Bridget Walsh, EY Global Private Equity Industry Market Leader; Tim Dutterer, EY-Parthenon US Private Equity Leader and Jon Morris, UK Private Equity Value Creation Leader, explain how private equity’s focus on operational improvement and liquidity as well as future-proofed strategies create resilience through the economic cycle."]}}]},{"id":"insights","theme":"lines-bg","blocks":[{"type":"StatChartBlock","content":{"source":"Source: CEO Outlook Pulse Jan 2024","chart":{"src":"/images/t2/p-13-2-chart.svg","src_m":"/images/t2/p-13-2-chart-m.svg","alt":""},"stat":"US$1trn","post":"of M&A deals in Q4 2023","desc":"It was a strong deal-making finish, with 14&nbsp;megadeals (US$10bn+) announced."}},{"type":"DoubleStatChartBlock","content":{"source":"Source: CEO Outlook Pulse Jan 2024","charts":[{"image":"/images/t2/p-13-3-chart.svg","stat":"79%","desc":"of CEOs anticipate that there will be an uptick in megadeals (US$10bn+)."},{"image":"/images/t2/p-13-4-chart.svg","stat":"71%","desc":"of PE leaders anticipate the same megadeal uptick."}]}},{"type":"CopyBlock","content":{"title":"How are private equity firms adapting to today’s uncertainty?","paragraphs":["<strong>Cash and liquidity management, cost control, talent retention and recruitment, AI, and ESG are all critical elements in the value creation strategy.</strong>","Private equity (PE) firms thrive on their ability to acquire and build great businesses even in challenging times. They are skilled at creating rapid value and adapting their plans as circumstances change. They have always had a differentiated approach, which gives them an edge, and their interventionist nature is key to achieving impressive returns in a competitive market. Given the significant shifts in the macro-economic environment recently, what are they doing differently now, and what can corporates learn from the way PE firms are adapting?","Many EY-Parthenon clients are finding that a value creation strategy put in place in the aftermath of the pandemic may be based on assumptions that no longer apply. Inflation has reached levels not seen in developed economies for decades, supply chains have been shaken, debt has become far more expensive and the global economy is suffering.","This means that exit valuations can be harder to achieve, and we are seeing typical holding periods lengthen. Affordable talent is scarce and new technologies – notably artificial intelligence (AI) – are driving waves of disruption across the business landscape.","Given this uncertainty, PE funds are doing what they do best – adapting fast to changing times.","Despite continuing uncertainty about policy and growth, there are positives to take from the US$1trn of M&A deals announced in Q4 2023. The strong finish to 2023 could provide a boost to dealmaking confidence going into 2024. With 14 megadeals (of US$10bn or more) announced, M&A activity was at its highest level since Q3 2021, at the height of the post-pandemic M&A boom. Both CEOs and PE leaders expect this trend to continue. After a subdued 2023, more than three-quarters of CEOs (79%) and a similar number of PE leaders (71%) anticipate that there will be an uptick in megadeals as the M&A market bounces back."]}},{"type":"StatImageBlock","content":{"image":{"src":"/images/t2/p-13-1-img.jpg","alt":""},"stat":{"style":"block-post","pre":"New priorities include","main":"generating the data insights","post":"needed to inform more granular decision-making around costs"}}},{"type":"CopyBlock","content":{"paragraphs":["Some of the trends we are seeing across the transformation areas that matter most remain consistent. There continues to be a strong emphasis on the following five areas: cash and liquidity, cost management, talent, technology, and sustainability."]}},{"type":"NumberedListBlock","content":{"list":[{"num":"01","title":"Cash management is more sophisticated","paragraphs":["PE portfolio companies are becoming much more sophisticated about how they unlock trapped cash across all their operations and territories. Maximizing the cash available to the business has always been critical to the way PE operates, as cash is much more valuable to a highly leveraged business than it is to a public company. We are seeing this become a much higher priority for many PE funds. They are critically examining their balance sheets, using better tools to forecast their cash needs, and establishing sophisticated cash repatriation and pooling systems so they can maximize liquidity and manage working capital even better."]},{"num":"02","title":"Costs are under the microscope","paragraphs":["Cost management is critical to PE firms, and this is another area where their approach has changed recently. Funds are investing significantly to upgrade the finance functions in their portfolio companies in an effort to transform their cost management capabilities.","New priorities include generating the data insights needed to inform more granular decision-making around costs, and putting more robust governance controls around spending and investment decisions and reporting. Funds are also working hard to create operating structures that can drive operating leverage as the business grows. Several funds have recruited operating partners with specific finance function responsibilities to drive this forward."]},{"num":"03","title":"Taking a different approach to talent is critical","paragraphs":["The PE model has always relied on and focused on having the best management teams in place, and PE leaders are now thinking differently about how they manage talent. They are holding companies for longer and their need for specialist skills and capabilities is growing, especially around data and technology. Talent retention and recruitment has never been more important, and in the current environment, funds are having to find new ways to empower their workforce.","Often, this means equipping people – in finance or tech, for example – with the tools and support they need to perform better. Funds are taking a much more granular perspective on talent when they make an acquisition – what skills do people have, how can they be improved, and how might they be pooled together or moved to benefit other companies in the portfolio? For example, funds are creating specialist cross-company teams to respond to the risk of cyber-attack."]},{"num":"04","title":"AI is dominating the technology agenda","paragraphs":["The rise of AI is leading many PE leaders to question their technology priorities. Its potential impact has become more prominent in due diligence over the past year. Funds are asking how AI might disrupt a business, its operating model and its balance sheet. Where will AI create opportunities and where might it be a threat? In particular, we are seeing more questions about how AI might lower barriers to entry – either allowing competitors into a market, or creating opportunities for the business to enter adjacent markets and segments.","Alongside the strategic thinking, funds are doing a lot of work to prepare their businesses for AI, such as generating or gathering the kind of data that effective AI requires. AI is also leading to greater value on sale due to a re-rating or increased multiple. At a time when companies are under financial pressure, there is less appetite for large digital transformations; instead, funds are focusing on ways to get more value from the technology they already have."]},{"num":"05","title":"ESG remains a critical value creator","paragraphs":["Improving a portfolio company’s environmental, social and governance (ESG) performance is often an integral part of the value creation strategy. What’s more, if a business cannot satisfy ESG reporting requirements, there are IPO routes that will be closed when it is time to exit. Another reason why funds are more likely to stick with a progressive ESG approach is that the investment they have received often comes with ESG commitments attached. Also, while its contribution should not be overestimated, our experience is that PE funds are more likely to see ESG as a source of value, rather than just a risk issue. Indeed, the findings of the EY PE Pulse Q4 Survey 2023 reinforce this. General partners (GPs) were asked to rate the degree to which they are leaning in on ESG and sustainability as a value creation lever on a scale of one to five, and almost 60% rated themselves at four or five. Moreover, 30% say they are looking holistically at ESG to help drive deal metrics, and that they expect a measurable ROI."]}],"cta":{"label":"Read more","link":"https://ad.doubleclick.net/ddm/trackclk/N284201.139656THEECONOMIST/B31553931.396695796;dc_trk_aid=588159866;dc_trk_cid=210642330;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=;dc_tdv=1"},"postCopy":["What can we learn from the way PE companies are responding to today’s climate? Most funds are having to hold companies for longer, but that does not mean they are slowing the pace of value creation. Operating partners are under constant pressure to show investors that they are hitting interim performance targets, and that they are ready to exit quickly, if and when an opportunity arises.","PE has always had a relentless focus on what matters most, and in these uncertain times, firms are innovating their approach to value creation and portfolio transformation. This will enable firms to optimize performance during extended holding periods and build in agility for optionality on exit."]}}]},{"id":"casestudies","theme":"dark-bg","blocks":[{"type":"CaseStudyBlock","content":{"title":"Unlocking value for a PE client","paragraphs":["When a manufacturer was struggling to scale despite having a full order book, EY-Parthenon teams built supply chain resilience into their process and used data to aid decision-making. Now, the company is reaping the rewards of accelerated income generation."],"video":{"src":"https://players.brightcove.net/1153191510001/default_default/index.html?videoId=6355001893112","title":"Playlist 13 case study"},"cta":{"label":"Read more","link":"https://ad.doubleclick.net/ddm/trackclk/N284201.139656THEECONOMIST/B31553931.396695796;dc_trk_aid=588159866;dc_trk_cid=217868566;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=;dc_tdv=1"}}}]}]}},"id":"new--playlist13"}}}