SuperReturn Recap: The Tide is Heading Out

Key Success Differentiators for PE for the Next 10 Years

Despite hearing pessimistic remarks from private equity luminaries during my time at SuperReturn, many private equity firms remained confident, citing strong deal flow and attractive target markets. While claims of target markets with “350,000  companies” and “60,000 software companies” were circulating, it’s important to remember that not all of these companies are suitable for PE investment. In addition, the AIC reports that 32,000 US companies are already PE-owned.

Keep in mind that many of these target companies have been approached repeatedly by PE firms in the recent high-valuation environment. So, what will entice the remaining independent companies to consider private equity ownership?

Increasingly Sophisticated Business Development Efforts

Leading middle-market firms are increasingly proactive and sophisticated in their business development. They’re not just waiting for auctions anymore. Instead, they deploy AI, dedicate teams to outbound campaigns, and attend industry events. Leading firms have highly personalized approaches, often led by senior professionals, which are proving effective. 

This proactive approach not only builds valuable pipelines but also allows firms to be more selective. Knowing there are ample opportunities in the pipeline encourages a more disciplined investment process. Tomorrow’s leaders can quantify their business development success, demonstrating a clear link between their sophisticated actions and returns in detail.

Authentic, Differentiated and Value-Added Capabilities

Independent company owners are seeking partners who can increase the value of their rollover equity. PE firms that go beyond board meetings and consulting and actively roll up their sleeves to help scale enterprises are most likely to win deals. Having worked for and advised some of the world’s most sophisticated investors on operational strategy and diligence, it was once again clear at SuperReturn that there’s a wide range of value-creation maturity levels amongst firms of all sizes.

How can one identify leaders in operational improvement? Top firms can quantify benefits to returns from enhanced organic revenue growth and margin expansion and the specific actions behind each.  

The Tide is Going Out.  Manager Selection is More Important than Ever.  Successful PE firms will differentiate themselves in the current environment through their origination and value-creation capabilities. Those who can provide detailed, quantifiable evidence of their expertise will be best positioned to acquire sellers at attractive prices and deliver strong investment returns.

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