The economic landscape is shifting with rising interest rates, continued inflation, and risk of recession, causing CFOs and COOs who are driving market-beating value creation to dig into operational work. As discussed in our previous blog post, Private Equity CFOs and COOs: Slow Down and Keep Close to Portfolio Companies, there are themes emerging from recent conferences that encourage CFOs and COOs to slow down and keep close to their portfolio companies. Two additional recurring themes are maximizing impact and outsourcing operational tasks and advisory at the firm and portfolio company level.
Time with portfolio companies is precious. To ensure engagement with portco CFO and COO peers, firms follow best practices for collecting and formatting data from portfolio companies in terms of financial performance dashboards, EBITDA, KPIs, and analytics on business drivers. There is a laser focus on the performance metrics that matter the most, such as revenue by region, sector, and product. Just as with budgets, looking at these metrics only annually, or even just quarterly, is no longer sufficient.
Spend management at portcos is a huge focus. Leading CFOs are comparing notes on enhancing procurement strategies, negotiating with vendors and service providers, punching above their weight with group purchasing, and getting creative with risk pooling across the portfolio. If the fund or the portco are not adding unique value – in realms from technology to HR to procurement – why would they maintain dedicated people?
No fund or portco who is already outsourcing their technology and network should be retaining their own travel team or procurement department to negotiate with and manage market data and other vendors. At a high level, these trends are no different from shifting spend from CapEx to OpEx, converting portcos from property owners to leasers, or leveraging to SaaS and the cloud. The hidden costs of the old approaches are simply running out of places to hide.
The operational tasks that CFOs and COOs are taking on reflect the economic landscape and focus for refining the Private Equity playbook for the firm level and portfolio companies. This blog series scrapes the surface for what themes the new Private Equity playbook is focusing on in 2023 to stay operationally efficient and cost conscious in this economic landscape.
Join us for the panel discussion on maximizing impact at thePrivate Funds CFO NY event in January to learn more: https://www.peievents.com/en/event/cfo-new-york/agenda/
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