Post deal teams in private equity (PE) firms are adding value to the portfolio company and generating higher returns on investments.
Vice President of Group Strategy at MR DIY Malaysia, Sathis Manoharen, was detailing how funds from investors are used by PE firms and how the post deal team – also known as value creation team – brings value to the target company.
“A post deal team is typically deployed into the portfolio company after the deal is signed and the PE firm buys a controlling or minority stake in a company,” he said.
”They would actively engage with the CEO and management, making suggestions that add value to the product and increase the revenue and market share of the company,” he continued. The team would also advise the portfolio company to discard business sub-sets that drag down its earnings.
He observed, “The post deal team’s entrepreneurial mindset enables it to be more efficient and practical in decision-making.”
Sathis said the post deal team ensures that it conducts operational analyses and due diligence before proposing and executing sustainable changes to the company’s operations. As the PE firm works across multiple industries, the team is able to cross-pollinate ideas, applying data or insights from other portfolio companies to benefit a particular company.
He said the post deal team will implement projects, select key people to drive initiatives, and hire and train talents. All these are designed to strategically move the company in the right direction.
He pointed out that the over-riding purpose of a post deal team is to “provide value to the shareholders who invested in the business” when the time comes for the PE firm to exit the deal.
He cited a case study in which the post deal team increased a retail company’s profit margin by 11% and brought down inventory by almost 50% in a one-year period. “We got rid of certain products that had low margins and low sales or low number of transactions. We also focused on individual incentives for the sales people,” he explained.
Sathis was speaking at a webinar on “Why You Need a Post Deal Team in Private Equity”, organised by WOU’s School of Business and Administration (SBA) on 20 May 2023 to kick off its Leadership Talk Series.
The PE sector is showing significant growth globally, according to the data he shared from Private Equity International. The global PE dry powder – industry term for capital – increased three-fold from US$1.2 trillion in 2011 to US$3.4 trillion in 2021.
He noted that private equity firms, especially in North America, are raising record amounts of capital for investments in the PE market. “The capital craze in the PE industry exceeded the GDP (gross domestic product) of some countries. In the last five years, US$716 billion in funds was raised by 25 private equity firms.”
“More and more private equity firms are seeing the value of having a post deal team to generate high returns,” he stressed.