7 Top tips on how to build a winning value creation plan

Value Creation in a Private Equity backed business

There are three key levers for value creation in a leveraged buyout, that all investors agree upon as critical in assessing the success of a business. They are:

  • Reducing net debt: Investors will be focused on cash flow and so should you. The priority should be on generating as much free cash flow as possible.
  • Growing EBITDA: This can be broken down into top-line expansion, through sales, international expansion and M&A, or margin expansion, which is usually achieved by operational enhancement or price refinement. The aim is to grow EBITDA by three to five times over the investment period.
  • Multiple expansion: This equates to any change in the entry/exit multiple, which is often driven by achievement in either or both of the previous two indicators. By growing your prospective sale multiple, you open up the possibility of different buyers, including trade, a public listing or another private equity fund.

Building the Value Creation plan

To qualify as a successful CEO in a private equity-backed business, you need to transform your company. You cannot just move at a steady pace – you must quickly and effectively identify the openings for growth in your respective market and implement a plan that allows you to realise those opportunities.

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