Five ways private equity groups can increase their portfolio value
Crowe Horwath LLP offers tips to increase the value of investments
NEW YORK, NY. (March 30, 2011) – Crowe Horwath LLP, one of the largest public accounting and consulting firms in the U.S., expects that private equity deal flow will grow in 2011 because private equity groups are sitting on significant levels of deployable capital. In anticipation of that, Crowe offers ways for private equity groups to increase their portfolio value now.
“Private equity groups spent a fair amount of time in 2008 and 2009 cutting costs, but now they’re looking to grow the business, whether that’s through a strategic acquisition, a new product line or a merger with one of their existing businesses,” said Kevin Hovorka, Crowe’s Private Equity practice leader. “Additionally, private equity groups have begun hiring operating executives to help improve earnings, increase cash flow and manage the risks of their portfolio companies.”
Hovorka suggests that private equity groups take these steps to help increase the value of their investments:
- Develop a business results roadmap. Turning a portfolio company’s (portcos) strategic goals into well-planned and executed initiatives is a struggle for many firms. Private equity firms should assess a portfolio company’s products, organization, supply chain and technology to pinpoint weaknesses and uncover opportunities that will have an overall effect on performance and return on investment (ROI).
- Reduce costs through strategic sourcing. Benchmarking and implementing purchase cost savings in multiple categories – such as raw materials, administration, packaging and maintenance, repair and operations – can uncover substantial savings without sacrificing quality or delivery.
- Review information technology (IT) systems. Private equity groups should determine if their portcos’ systems are current by completing an IT assessment of their holdings. The group can then plan and implement an IT strategy for their portcos that ties business performance to increased ROI.
- Take advantage of business credits and incentives. There are numerous tax strategies private equity firms can use to increase earnings before interest, taxes, depreciation and amortization (EBITDA), including state and local tax credits and incentives, which are often overlooked. If the portcos are hiring new employees, training employees or spending capital over the next three years, there are likely to be incentives and tax credits available.
- Manage risks. The initial public offering (IPO) market is picking up pace so private equity firms need to prepare their holdings for IPOs. In doing so, they will have to address the regulatory requirements of Sarbanes-Oxley (SOX) 404.
For more information on maximizing the value of a private equity firm, please visit: http://www.crowehorwath.com/industries/private-equity-group/.
About Crowe Horwath
Crowe Horwath LLP (www.crowehorwath.com) is one of the largest public accounting and consulting firms in the United States. Under its core purpose of “Building Value with Values®,” Crowe assists public and private company clients in reaching their goals through audit, tax, advisory, risk and performance services. With 26 offices and 2,400 personnel, Crowe is recognized by many organizations as one of the country's best places to work. Crowe serves clients worldwide as an independent member of Crowe Horwath International, one of the largest networks in the world, consisting of more than 140 independent accounting and management consulting firms with offices in more than 400 cities around the world.