• Type: Publication series
  • Date: 2/11/2013

How private equity directors can work more effectively to create value 


Daniela Nemoianu

Executive Partner
KPMG in Romania

KPMG and Directorbank conducted a survey of over 300 senior executive and non-executive directors of portfolio companies to find out their views of life under private equity ownership and what skills they valued. In-depth interviews were held with a further 23 directors – all of whom had experience working with several private equity-backed business over a number of years.

Daniela Nemoianu, Executive Partner, KPMG in Romania, said: “The CEE and local market shows moderate optimism for 2013, with industries such as financial services, energy, retail and healthcare capturing investors’ interest.  Competitive strategies and efficiency tools remain strong differentiators, while the appetite for expansion cross border is increasing. PE houses active in Romania have a solid track record of successful investments and have actively contributed to the profitable business development of various sectors, even during the recent harsh conditions of the economic crisis.  Such key role, tailored to the actual challenges, will continue to make an impact on the general business trends and will send clear signals regarding the investment climate of Romania. It is of paramount importance for the Government to proactively foster direct foreign investments, promoting an integrated transformational strategy to focus on economic growth and competitiveness, underpinned by practical measures to speed up the large infrastructure and energy projects, reinvigorate EU funds absorption and plan the next financing period, cut the red tape, remove institutional inefficiency and eradicate corruption”.



Private equity returns continue to outstrip quoted shares and it is certain that operational improvement in portfolio companies is a key component of value creation. Of our sample, 63 percent had been involved with a private equity-backed business which was subsequently sold and, of these, 77 percent had been sold for a profit. According to the survey, the most important contributors to the value uplift were operational improvements and sales growth. Leverage and growth through acquisitions were much less important; highlighting perhaps the reality of the more difficult funding climate.





    Approximately 40 percent of the respondents credited private equity with contributing more than a quarter of the value uplift achieved on exit. This is a clear indication that private equity is capable of generating a significant amount of value. For the rest of respondents who estimated the value uplift at 25 percent or less, this still represents material incremental value which contributes to private equity’s ability to outperform public markets.


    Where private equity made a significant contribution to the value uplift, it was said to be through the following means, in rank order:


    • Provided capital to grow business
    • Optimized business plan
    • Removed constraints on management
    • Brought in operational expertise
    • Other (including dealing with banks)

    The finding that the majority of our sample ascribed a moderate figure to private equity’s contribution to value uplift may surprise private equity executives – but not management. In their eyes, private equity backers are viewed as enablers; meaning that their ability to contribute value is focused on areas such as providing access to capital and bringing a greater focus to achieving an exit. Management, and for that matter non-executive chairmen, tend to believe that real value creation comes from growing the business and improving profitability – and this is down to the executive team.


    However, respondents acknowledged that in some cases, private equity directors are able to make much greater contributions – in the range of 30–50 percent of the uplift in value.


    We should point out that respondents’ views on the contribution private equity firms make to value uplift were estimates and not usually based on detailed analysis



    • Access the survey here



    Share this

    Share this