3 Ways to Reset Your PE Exit Strategy for Today’s Tougher Environment

3 Ways to Reset Your PE Exit Strategy for Today’s Tougher Environment

by Bryan Graiff
July 03, 2024

Limited partners who supported private equity firms’ portfolio growth pre-pandemic are looking for returns, and PE firms must deliver — or risk a slowdown in new cash. But with high interest rates raising the cost of capital and driving valuations down, especially in the hard-hit tech sector, old exit approaches won’t work.

Buyers are no longer rushing to the table in this less frothy market; they want to see stable, sustainable growth and profitability before inking a deal. To get the value investors expect, it’s imperative to optimize your portfolio company before pulling the trigger by improving financial performance and operational efficiency well ahead of a planned exit.

The hard work must start long before the company hits the market or files for an initial public offering (IPO). But time is money, and achieving your goals quickly is important for your investors and your bottom line. Set your strategy on the fast track to success with these three ideas to accelerate improvement initiatives in your portfolio companies.

1. Make Smart Technology Upgrades

The world is changing at lightning speed, and the right business technology helps your portfolio companies keep up. Implementation and training are vital components of your tech improvement plan. You must also be mindful of timing issues that can influence how tech upgrades fit into your exit strategy.

  • Tech changes take time to adhere. It’s ideal to have major changes such as a new enterprise resource planning (ERP) or customer relationship management (CRM) system in place far enough before an exit to allow ample time to implement, integrate, train on and adapt to the new processes associated with your freshly upgraded technology.
  • It’s not too late to improve. Don't abandon the idea of making upgrades if your exit window is closing. It’s never too late to benefit from a better approach to business technology, and potential buyers will appreciate the head start on efficiency gains your investment gives them. That said, sooner is better for your firm and your portfolio company.
  • Delays can diminish your rewards. Substantial tech improvements right before an exit give you a shorter track record to illustrate the payoff of added efficiencies. Last-minute upgrades can also keep you from realizing the full boost to your sales price because the inevitable hiccups that accompany change may limit your ability to showcase the company as a model of smooth performance.

How to accelerate your exit strategy with tech upgrades

Don’t risk ill-advised choices, unforeseen complications or sub-optimal results with something as impactful as new technology. This is the time to bring in business application consultants who can deliver a smooth implementation and integration process, prepare your teams with crucial user training and address problems so you can see more rapid results.

  • Focus on implementations for smoother performance and quicker efficiency. When your new ERP, CRM or other solutions are properly implemented, you can see better results faster.
  • Prioritize training for IT staff and all users for better results. Start everyone out with comprehensive training from experienced professionals. But don’t stop there — hold ongoing training to build skills, remediate deficiencies and gently push resisters into compliance so you can reap the full benefits of your investment.
  • Address previous upgrade issues. If you’re not seeing the anticipated payoff from a technology upgrade, outside experts can help identify and remedy the problem, whether it’s inadequate training, weak integration with other tools or a poorly customized installation.
  • Get ahead of potential security concerns. Bolster your exit strategy by working with specialists to doublecheck cybersecurity for new technologies as well as legacy tools, systems and processes before you list the company for sale.

2. Develop a Viable Growth Strategy

Is your portfolio company hitting its growth targets? Purchasers want to see profitability and sustainable growth potential that can withstand the rapid pace of technological, demographic and climate-driven change. A viable growth strategy that addresses these issues allows you to wow buyers by showing them realistic projections for future growth.

  • Give more than a back-of-the-envelope approach. You don’t have to execute everything, but you need a strategic growth plan that documents the steps you’ve taken during the holding period, what’s left to do and how future investment can take the company to the next level.
  • Make sure your growth strategy is viable and concrete. Hopes and dreams won’t cut it. What role does marketing play? Is the company’s marketing technology delivering the ROI you’re looking for? How much expansion depends on new investment? Whether it’s organic, inorganic, or both, be ready to show a rationale to support each element in your growth plan. (Data analytics can be a big help here.)
  • Show how you’ve addressed common growth barriers. How did you mitigate the risks associated with supply chain vulnerabilities, skilled labor shortages and other challenges? How can buyers be sure the company has appropriate human capital and a strong, stable leadership structure that can deliver on the promise of future growth?

How to accelerate your exit strategy with growth analysis

Experienced PE transaction advisors can review your existing growth strategy or help you formulate a new one that’s both workable and supportable. Here’s how they can help you kick your growth strategy into high gear:

  • Employ data analytics to measure and benchmark the company’s financial, operational and strategic performance. This data will help you answer key buyer questions like:
    • What are the actual costs of customer acquisition?
    • Is the company bringing in new customers and maintaining and expanding profitable existing customer relationships?
    • What’s the ROI on opportunity generation efforts?
    • Does the company have aligned sales and marketing teams working together to optimize growth — or just a sales leader who also runs marketing “campaigns”?
  • Explore how AI will impact the company’s competitive position and growth strategy. By collaborating with growth experts, you can articulate to buyers how AI will specifically shape the company’s future growth trajectory.
  • Tell a better company story. An outside advisor can help you address differentiators like your value proposition and revenue generation plans and refine your growth story so it’s most compelling for your target market.

3. Get the Right Team in Place (Including Outsourced Talent)

Getting the returns you need on your investment can hinge on your people. Potential buyers are wisely risk-averse in a tough labor market.

  • Buyers want to see more than talented individuals. They want a cohesive leadership team with complementary skill sets and a shared culture that facilitates lasting success. That could mean replacing long-time finance teams that can’t meet new and more demanding reporting and regulatory compliance requirements.
  • Consider leadership transition scenarios. This is especially important in family-run businesses, which can present thorny personnel issues. Some leaders may perform at a higher level with coaching and training, while replacing others with new talent is the best option. If the original owner won’t stay on after the sale, assess and proactively fill any skill and knowledge gaps their absence could create.
  • Outsourcing can reassure buyers. Outsourced providers don’t always cut costs, but they can improve the quality of services and reduce the risk of instability. Consider whether outsourcing critical operational or financial functions could mitigate human capital concerns and reassure interested parties.

How to accelerate your strategy with team enhancements

It can be a struggle to provide enough boots on the ground when a portfolio company needs attention. External consultants are a valuable resource to help you get team expertise in place, shorten operational turnaround times and improve your ROI. Here are some meaningful ways outsourcing talent can help you exit faster:

  • Get strategic help to execute your exit plan. Look to outside experts for on-site intervention, training and support in implementing your plans across all areas of a portfolio company.
  • Lean on your consultants for interim support. Don’t let your improvement plans grind to a halt due to talent issues. Consultants can provide insights and strategic guidance and parachute in experts who can get it done.
  • Fill your expertise gaps. Consider outsourced talent to meet crucial financial needs like tax and audit expertise and to quickly plug holes in your in-house team.
  • Augment your leadership team. Identify management and leadership roles where outsourced professionals with unique skill sets could quickly deliver results.

Jumpstart a Successful Exit Strategy

Achieving the value you need to meet investor expectations is far from a given in today’s market. Find out more about how Armanino’s private equity consultants can help you boost valuations faster, bridge skill gaps and deliver the return you (and your investors) seek.

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