What to Do During Periods of Slower Private Equity Activity 

It’s true that private equity activity is experiencing a bit of a slowdown – however, this is also the perfect time for business leaders to switch their focus to operational enhancements so that when the market does normalize, they’re best prepared to capitalize on future growth opportunities. 

As experts in helping businesses execute successful transactions, we’ve outlined some essential tips to help you better adapt to shifting market conditions while setting yourself up to maximize the value of a deal. 

Why is private equity activity currently slowing? 

Rising interest rates, inflation, the threat of a looming recession, lower valuations and difficulties surrounding fundraising efforts are all causing unfavorable market pressures for the private equity space.  

Whereas 2022 was a record-setting year for private equity, the number of successful transactions is expected to continue to decrease in the coming year. 

For more information on the impact of inflation on private equity, head to our blog: Inflation & Private Equity: Impacts & Mitigation Tips.

Key Operational Enhancements to Focus on During Times of Slower Private Equity Activity 

1. Leverage & optimize technology
2. Rework KPIs
3. Enhance financial planning & analysis efforts
4. Conduct scenario planning to avoid costly setbacks from market pressures 

Leverage & optimize technology 

Implementing new technology or optimizing your current configuration is a great way to prepare your business to capitalize on future private equity opportunities.

Applying new cloud tools and applications allows you to automate certain business processes, drive efficient communication and collaboration between teams, develop more accurate insights into financial ongoings and more. 

By taking the time to realign your systems with your overall business strategy and ensure they’re able to keep up with a fast-paced, ever-changing market, you’ll be better suited to foster more company-wide alignment in preparation for a future deal. 

Plus, while implementing new systems or cloud tools might be costly up front, it can often be more cost-effective in the long run compared to hiring a full-time employee. The high-level production you receive from a system will likely be cheaper than the expense of human capital. 

Rework KPIs 

During periods of slower private equity activity, it’s vital to review and revise your KPIs on a regular basis in order to identify the proper tracking methods needed to effectively reach your goals. 

Essential KPIs to rework include those for financial, customer, sales, operational and employee ongoings. Ask yourself: Am I tracking what I need to be tracking? Does my team have enough visibility? Can I automate any KPIs to save time? For more information on how to successfully rework KPIs, head to our blog: Tips for Leveraging KPIs That Drive Business Growth. 

Answering these questions while the market is slow will allow you to efficiently monitor your portfolio and portfolio companies while understanding the overall performance of your fund, best preparing you to capitalize on future growth opportunities.  

Enhance financial planning & analysis efforts 

Taking the time to update your cash flow forecasting models and focus on financial process optimization is a helpful way to enhance your financial planning and analysis efforts in preparation for a future deal. 

Essential FP&A areas to improve: 

• Working Capital: Monitoring your working capital ratios, optimizing the process of issuing invoices, improving inventory management and more. 
• Accounts Receivable Turnover: Systemizing invoicing and payments, enhancing collection strategies, aligning your team on AR collection, potentially offering discounts or payment plans, and more. 
• Accounts Payable Turnover: Turning to automation/going paperless, reworking KPIs, establishing reliable fraud detection, creating safeguards for duplicate payments and more. 
• Return on Equity: Increasing profit margins, improving asset turnover, distributing idle cash, identifying ways to lower tax payments and more. 
• Current Ratio: Delaying purchases that require cash payments, attempting to re- amortize the terms of your loans, repaying or restructuring debt, negotiating longer payment cycles and more. 

Focusing on enhancing your FP&A efforts will allow you to put your best foot forward in integrating the right growth strategies and creating more value – both of which are key factors of a successful private equity transaction, as firms want to go after businesses with strong fundamentals and operational excellence. 

Conduct scenario planning to avoid costly setbacks from market pressures 

Scenario planning will allow you to foresee potential setbacks well before they arise, providing the opportunity for you to rework your business model as needed to overcome market pressures. 

Planning for the unknown can be difficult, but some key factors of a successful scenario plan include brainstorming potential future scenarios that may cause harm to your business, identifying trends and driving forces, and developing a plan of corrective action. 

For example, what will you do if your suppliers increase their prices as a result of higher interest rates? What happens if there’s a disruption in your supply chain, or an increase in the cost of raw materials? With investors switching their focus to fixed income streams and other securities, what will you do if you identify a need to apply for external funding? Will you need to increase employee salaries to help them offset some of the pressures of inflation? 

Whatever your business needs may look like, conducting scenario planning is essential for providing visibility into potential setbacks, analyzing areas of pricing pressure and identifying opportunities for increasing cash flow. 

Final Thoughts on What to Do During Slow Times of Private Equity Activity 

Juggling operational enhancements while you navigate the day-to-day ongoings of your business can be challenging without conducting the proper planning and allocation of resources.

For best results, it is often more beneficial to leave it up to the experts and turn to a skilled private equity consultant for guidance. 

Whatever your business needs and situation, a private equity consultant is there to act as an extension of your business, analyzing your operations to provide recommendations for improvements and working with your high-level executives, investors and private equity firms to prepare your business to be sold for a profit. 

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Insights By

Todd Throckmorton

National Director, Private Equity

Todd brings over 25 years of business development experience to Bridgepoint, with the last ten years devoted to leading the