With increased competition in private equity deals, many investors hire private equity consulting firms to find attractive investments and ensure acceptable returns. Beyond financing and transaction service, these firms enhance the PE team’s internal and external firepower. Many PE investors are surprised by how these firms plug their projects and maximize returns. Wondering how these firms deploy and increase value? Let’s take how they help their portfolio companies beyond financing.
How do PE Consulting Firms work?
Consulting firms augment a PE team’s internal processes with services like deal origination. They also handle external services like growth, operations, M&A, and restructuring. They help an investor identify an undervalued company and buy it at a reasonable price. Then they sell it or make it public to earn profit. The ultimate aim of a consultant is to support growth, minimize costs, and transform them to maximize value. By outsourcing a PE team’s operational tasks, a portfolio company may focus on internal deal-making.
How do PE Consultants add Value for the Investors?
These are a few activities that a private equity consulting firm handles to add value for the investors:
Deal Origination and Analysis: A PE team needs a steady supply of lucrative deals to succeed. Since deal origination and analysis are complex and time-consuming, consultants can handle it with expertise while keeping the PE team free to focus on core activities.
Deal Screening: Once the team identifies a potential target, the consultants quickly assess its viability for investment. There is no use spending time on irrelevant leads that are not suited for a clear advantage, allowing the team to focus on higher-value activities. The consultants will analyze a firm’s financial performance, the sector it operates in, and the main risk factors involved in it.
Market Research: The consultant team deepens the analysis if they find the firm a potential investment target. They assess the firm’s comparative advantage and see if it is sustainable. Understanding such factors needs extensive research, which a senior-level private equity consultant can handle with expertise.
Valuation Review: Before investing, the PE investors need a clear view of the target’s value and the price it can offer. The investors build a comprehensive valuation of their proposal and submit it to the committee based on the results. A PE consultant’s perspective on the component reassures and validates the used assumptions and helps an investor make an informed decision.
Access to Top-Tier Talent: The consultant offers top-tier talent to unlock value during ownership. They can add maximum value to achieve strategic goals with their expertise, experience, and background. Primary areas in which consultants can offer unmatched services include growth, operational support, M&A, restructuring, and management services.Private equity funds that the investors choose must be cost-efficient, agile, and focused on comparative advantage. The primary focus should be on opportunistic and strategic acquisitions while protecting investors’ value. Hiring private equity consulting professionals relieves and supports investment teams, mainly when done flexibly. Operational support includes optimization services like pricing, digitization, data management, communications, reporting, and IP monetization, among others.
