Professionalizing private equity assets in extended holds

Private equity (PE) firms are increasingly holding portfolio companies for five or more years, according to the PitchBook 2024 US Annual PE Breakdown, which gives potential buyers more time to scrutinize operational weaknesses, potentially lowering enterprise value. This trend calls for a proactive approach to professionalizing operations from acquisition onward, facilitating a cohesive, integrated portfolio rather than a fragmented collection of assets.

By focusing on operational excellence and prioritizing risk management across human capital, operations and technology, PE leaders can drive profitable growth, resilience and exit-readiness. It requires an end-game mindset from the moment an acquisition is targeted. Leaders should start by asking: “Will this business run like a cohesive, integrated company or will it crumble under buyer scrutiny?”

Operational gaps that can undermine sustainable growth

Many PE acquisitions begin with companies in operational disarray. Foundational capabilities, particularly in human capital and technology, are often underemphasized early in the hold period, limiting long-term value creation. Recognizing common pitfalls and their operational characteristics is an important step toward creating a cohesive portfolio.

Addressing these gaps early is critical for unlocking full value at exit, with a focus on human capital, technology (including AI) and governance.

Human capital: Leadership alignment fuels execution

A successful value creation plan requires leadership that is strategic rather than merely functional. Therefore, a priority in professionalizing operations is conducting leadership assessments, ideally before the deal closes. Key steps include:

• Conducting leadership assessments before deal closure to evaluate strategic fit. For instance, is the chief financial officer more of a controller focused on transactional elements of the business or a strategic planner of investments and cost take-out? Is the chief information officer equipped to guide a digital transformation or a complex integration?
• Aligning roles, decision rights and accountability clearly, supported by incentive structures tied to value creation milestones.
• Modernizing HR infrastructure by investing in unified platforms for payroll, employee data and performance tracking across acquired entities to help close operational gaps, such as inconsistent processes, fragmented reporting or compliance exposure.

Technology: From cost center to value driver

Technology should be viewed as a growth enabler and cost optimizer, especially during longer holds. PE leaders should:

• Catalog pain points through interviews with department heads to identify high-impact technology investments
• Encourage executive-level engagement and cross-functional representation in planning strategic deployments of technology investments
• Streamline the integration of acquired companies using consolidation tools, data warehouses and technology M&A playbooks
• Increase visibility by consolidating reporting across disparate enterprise resource planning solutions, enabling real-time insights into financials and operations
• Support growth functions such as sales, customer support and supply chain with integrated systems to scale effectively
• Drive efficiency with AI by automating routine tasks to free up staff for higher-value work; examples include implementing customer service chatbots to answer frequently asked questions or leveraging predictive analytics for demand forecasting

Governance: Focus and accountability across the lifecycle

As portfolio complexity increases, so does the need for strong governance. Without structure, even well-capitalized companies will drift. One RSM portfolio client was running 75 supposedly strategic projects, many off-budget and behind schedule. With support, the executive team whittled that down to 20 priority efforts aligned with EBITDA and growth targets. PE leaders can similarly reduce initiative clutter through effective governance, which includes:

• Establishing strategic initiative management through program management offices or firm-level oversight to track execution, reduce the number of strategic projects, manage third-party performance and measure return on investment aligned to EBITDA and growth targets
• Using playbooks and frameworks to define integration plans, leadership onboarding and stage gates, which build repeatable excellence and reduce reactive management
• Aligning incentives with priorities by connecting performance goals to value drivers like EBITDA margin improvement or synergy capture

The takeaway

Professionalizing a portfolio company involves targeted steps to transform a collection of assets into a scalable, sellable business. This includes placing the right leadership, implementing a technology stack that supports scale and establishing governance that balances discipline with agility. Applying this strategy throughout the hold period fosters sustainable, credible growth that withstands buyer diligence and maximizes exit multiples.

PE leaders are encouraged to engage experienced advisors in bringing frameworks, benchmarks and objectivity to leadership evaluation, technology planning and governance execution, as these fundamentals often determine the difference between premium exits and price adjustments. In many cases, this also means considering how to augment internal teams with external support to close capability gaps and accelerate progress toward value-creation goals.