The thought of private equity (PE) may bring up visions of a real-life Monopoly game where companies are bought and sold through big deals. But that picture may be changing, at least in the meantime.

Because of more challenging economic conditions, many PE firms are pumping the brakes on acquisitions. Instead, they’re turning toward optimizing their portfolio companies to be more efficient, profitable and valuable. Let’s dive into the reasons for a renewed interest in private equity portfolio operations.

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What’s Going on with Private Equity?

PE focuses on buying companies, making improvements and then selling them at a profit. But when investors are more cautious, deals slow. The result is that PE firms ask ‘how can we get more from what we already own?’

The answer: make those businesses run better through operational efficiency.

In short, operational efficiency means optimizing a company’s processes to reduce costs and maintain or improve productivity, while increasing profitability. For PE firms, it’s a way to create value in their investments. Here are a few reasons private equity turns to operational efficiency to offset changes in market conditions:

Costs Are Up, Margins Are Tight

Inflation has pushed up prices. If companies don’t tighten their operations, profits are impacted. PE firms are looking for ways to cut waste and control costs without sacrificing quality or growth.

Cash Is More Expensive

When interest rates rise, it’s more expensive to borrow money. More expensive loans mean higher monthly payments. That eats into profits and makes it harder to justify taking on large amounts of debt. But focusing on operational improvements can free up cash from within the business through savings found by cutting waste or improving productivity, for example.

Efficiency Builds Competitive Advantage

A well-run company is better able to respond to changes in market conditions, better serve their customers and maintain or increase their competitive edge. That makes it more attractive to buyers when it’s time to sell.

How PE Firms Are Boosting Performance

When the focus turns from the next acquisition toward operational efficiencies, many PE firms take a closer look at how they can improve performance. Here are a few strategies they’re using:

Working Capital Optimization

This is all about improving cash flow. Firms are helping companies:

Get paid faster by customers (speeding up receivables)
Take longer to pay their own bills (stretching payables)
Keep the right amount of inventory—avoiding over – or under-stocking

Lean Processes

PE teams are searching for ways to help their portfolio companies work smarter, not harder. Whether it’s cutting production waste, reducing turnaround times, or eliminating unnecessary steps in a workflow, these changes can make a big impact on profits.

Tech Upgrades and Automation

Technology plays a big role in becoming more efficient. That might mean:

Upgrading outdated systems
Using data analytics to make better decisions
Automating repetitive tasks so people can focus on higher-value work

Digital transformation is one of the best ways to streamline operations and scale faster.

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Getting the Right People in Place

Talent makes a huge difference when trying to optimize operations. PE firms are investing in restructuring initiatives to make their companies more agile. This may entail bringing in new people into leadership roles, reorganizing management layers, or implementing incentive programs to keep the whole team pulling toward the same goals.

Rethinking the Supply Chain

The events of recent years have exposed just how fragile global supply chains can be. PE firms are helping companies reduce risk of these disruptions by:

Finding backup suppliers
Reshoring operations
Improving visibility so they’re not caught off guard

Conclusion

Private equity is evolving. By focusing on operational efficiency, PE firms aren’t just managing through tougher economic times—they’re setting their portfolio companies up to thrive no matter the market.

For private equity firms looking to speed value creation within their portfolio companies, partnering with experienced consultants can be a game-changer. Ultra offers tailored services designed to enhance operational efficiency and drive growth. Our expertise spans due diligence support, business value realization, technology alignment, fractional leadership, and data visibility, all aimed at unlocking the full potential of your investments. Reach out to request a free discovery call today to discover how we can provide strategies to help your firm navigate challenges and maximize returns.