Outlook 2012: Operational due diligence

Sam Vail, a private equity-focused partner at TPI, predicts GPs' value-add efforts at the portfolio company level to pick up steam in 2012.

As the market continues to recover from the disruption of 2008, participants in the private equity ecosystem are settling into the new financial order and finding new ways to generate targeted returns.

In 2012 we see private equity firms increasing their commitment to improving the operational performance of their portfolio companies as well as picking up the pace for add-on acquisition activity, as there is growing urgency to deploy dry powder. Discovering significant value creation opportunities will be a core focus in 2012 as private equity operating professionals will be assisting portfolio company executives implement initiatives such as migrating to standardised and consumption-based delivery of IT services, developing strategic supplier management programs, (improving vendor process performance through best-in-class governance mechanisms is critical, as our research indicates that 5 to 30 percent of the expected value from outscoring or managed services is lost through ineffective governance) and leveraging outsourced business functions such as finance and accounting, human resources and procurement.

This will be the year that many private equity firms will recognize that these types of operating initiatives are not just about reducing cost, but also about delivering an improved ability to integrate and respond to new market and customer requirements.

Sam Vail is a partner at TPI, a global sourcing advisory firm, where he specialises in the private equity and M&A markets.