Denice R. Preston
Private equity investors have records of $1.5 trillion in unallocated, unused funds – more than double what they had five years earlier. With the increased competition for the same deals, the war chests of these investors are more difficult to use than ever before, as locating appealing investments that yield acceptable returns becomes more challenging. What can private equity companies do to efficiently deploy and generate shareholder value from this stockpile currently sitting in the back of the closet?
One solution is outsourcing certain kinds of work to highly qualified private equity specialists. Beyond the conventional consulting services offered to PE companies (e.g., transaction services), Finance consultants who are freelance can help to increase and enhance the PE team’s power internally (through projects such as deal screening) as well as externally (through initiatives like managing portfolio operations and companies). Many are amazed by the ease and speed with which a top-quality private equity freelance consultant can join projects and begin working.
The Private Equity Value Chain
We have observed that freelance PE consultants are the most effective for internal services like deal integration and origination and external services targeted toward portfolio companies, such as growth, restructuring, M&A, and operations.
What exactly do private equity firms create profits for shareholders? The primary principle is to find companies undervalued and acquire them at a fair price. Additionally, they must be able to sell the business (or help it if they decide to go to the public) at a price that is a fraction of the cost at which they bought it. But most of the value is produced in the middle. Private equity funds collaborate with the companies they invest in and managers to help support growth, reduce expenses, and, in general, transform their portfolios.
The concept of comparative advantage suggests that it is advisable to concentrate on what you excel at and outsource tasks you’re not so strong in. The diversity of your skills indicates that cooperation can be beneficial. It also means it’s more efficient to concentrate on your strengths while hiring others to do tasks that fall beyond your primary skills. In the case of private equity, this may be outsourcing support to operational aspects for portfolio companies and focusing internally on structuring deals and deal-making. This article demonstrates the ways consultants can help in these scenarios.
Enhancing The Internal PE Team with Deal Origination & Analysis Freelancers
A steady supply of appealing deals is the lifeblood of a fund’s success and is a crucial capability for its investors. It’s a long-winded procedure that is proprietary and executed internally via personal and professional networks, research and cold-calling, or intermediaries like the investment banking industry and advisors.
Deal Screening
When a possible target is identified, the first step is to glance at its investment potential. Around one-fourth percent of deals a fund considers go to the next stage, an investment committee. The reduced time that investment specialists of the fund devote to leads that aren’t pertinent or appropriate offers a distinct advantage in that it frees up their time to focus on other, more valuable activities.
The initial stage of this screening procedure is usually simple and easy to define. It’s just a test against the fund’s investment requirements. It is likely to include an examination of the company’s financial results, followed by a short review of the market the business operates in and an assessment of the principal risks to the investment. The final product will likely be a brief document containing a “yes” or “no” answer.
This is a great chance to use the services of an external source. The accuracy of the selections is vital since the fund might overlook essential investment opportunities. A specialist in private equity or any other relevant field will be able to give an accurate and concise analysis, allowing the team members to concentrate on their other tasks.
Market Research
As the investment candidate progresses, the examination becomes more in-depth (and takes longer). In this phase, before taking the company before the investment committee, the report will concentrate on whether the target is a market leader in its field, if it is competitively superior or not, and if it’s long-term sustainable, as well as the macroeconomic and industry changes that could impact it throughout holding to the investment fund (typically five to ten years). Knowing these aspects requires a lot of analysis. This is another job that could be outsourced to a top-level consultant in private equity who is a freelancer.
Valuation Review
Before the investment is completed, The private equity fund needs to clearly understand the value of the business and what value it could provide. Therefore, the fund will develop a thorough valuation model vital to any proposal presented to an investment committee. It is important to note that leveraged purchase models are incredibly complex and show every line of the company’s balance account. A different perspective from experienced freelance consultants for finance modeling, especially those specializing in the “macro” component, can help confirm the assumptions used.
Portfolio Companies that have top-of-the-line talent
The top talent who can be brought in when needed will help to unlock the value of portfolio companies under ownership. This is among the areas where freelancers have the most outstanding value, as they can combine projections of financials with specific goals for strategic planning. Private equity consultants on the freelance market have particular knowledge of their industry. They have substantial expertise and experience in integrating new companies swiftly, thereby giving portfolio companies the needed assistance flexibly and efficiently. The main areas in which freelance finance professionals excel in portfolio companies are managerial services (e.g., CEO, CFO) and operational support, growth, restructuring, and M&A.
When the Management Team Needs to Change
Usually, private equity funds look at managers of businesses they acquire and make a decision to replace certain key individuals strategically. With the huge quantity of PE assets under control, funds are discovering that their typical group of employees is already employed on other projects. However, the process of choosing the right professional could be time-consuming. On average, a C-suite executive or CEO could take four to eight months. The selection of a qualified, vetted interim manager will allow the company to stay in the right direction during a period of change that could cause disruption to operations (and consequently costly). For instance, they are efficient from the beginning of the process and can successfully help a company navigate an era of transition.
