As private equity (PE) prepares for a sustained increase in deal activity, one reality is unmistakable: active value creation has become a key driver of investment performance.

At its core, value creation in PE is about actively growing the underlying business – improving performance, strengthening operations and, ultimately, increasing value at exit.

While expectations remain anchored around delivering a traditional 20% IRR, the route to achieving that has changed. A decade ago, steady EBITDA growth of around 5% each year could underpin strong returns. Today, closer to 12% growth is typically required to achieve the same outcome. With exit volumes at their lowest in five years and multiple arbitrage far less reliable to generate returns, PE firms and portfolio companies are under pressure to work harder and smarter.

From financial engineering to sustainable EBITDA growth

Historically, approaches were often anchored in financial restructuring and aggressive cost control. The emphasis has now shifted towards systematically growing EBITDA through sustainable operational improvement, de-risking the business and making decisions underpinned by robust, data-driven insight.This is particularly evident in buy-and-build strategies, where value is increasingly determined by the quality and integration of the underlying platform.

Whether value creation planning begins pre-acquisition or is sharpened in preparation for exit, the expectation is the same: value must be tangible, measurable and defensible. Investors are no longer rewarded for simply optimising capital structures. Instead, returns are increasingly driven by what happens inside the business.

The key drivers of value creation in private equity

Value is created through operational excellence, talent, innovation, data and disciplined M&A that supports strategic growth. This evolution has driven fundamental shifts in how PE firms and management teams operate:

• From financial leverage to operational improvement
• From passive investors to operational partners
• From technology as a risk to technology as a strategic enabler
• From cost savings to working capital optimisation and cash resilience
• From managerial oversight to human capital investment.

Where market conditions and capital structures once dominated the value creation conversation, delivering sustained improvement now relies on a capable management team with a clear strategy and operational discipline.

Talent as the first lever of value creation

We believe that talent – particularly leadership talent – is the most critical lever for creating value. Although the level of leadership involvement is variable, investors still have a role to play with a newly acquired business. Most acquisitions involve one of three management team scenarios, each with distinct implications:

High-performing, future-focused management team

An existing leadership team that is high-performing, cohesive and aligned with the investment thesis is the ideal scenario. However, even strong leaders may become flight risks if uncertain about their future, so the management team becomes the priority. PE owners should implement structured incentive plans, transparent communication and clear pathways for shared value creation to ensure continuity.

Legacy management team with a short-term orientation

Some leaders plan to transition out once the deal closes, requiring proactive succession planning. Whether successors are internal high-potential individuals or external hires, transitions must be seamless to maintain momentum and organisational confidence.

Management team with capability gaps or limited experience

Significant leadership change is the most challenging scenario. Replacing senior leaders, restructuring roles or realigning the organisation necessitates both a strong recruitment strategy and clear communication. During periods of substantial change, particularly under new PE ownership, employees often fear for their job security. Securing steady leadership is crucial to maintaining morale, retaining key talent and ensuring operational stability.

Across all scenarios, one universal truth remains: people drive transformation While the management team is critical, the strength and quality of the next layer of management is just as important.

This group forms the organisation’s engine room, driving execution and day-to-day performance, enabling senior management to focus on strategic priorities. A strong and well-embedded layer provides continuity and resilience, supporting long-term succession planning and ensuring the business is well positioned for the next transaction.

Gaining a clear view of both the management team and next layer of leaders, culture and capabilities that you’ve acquired is fundamental to shaping an effective value creation plan. That assessment may start in due diligence, take place in the first 100 days post-close or evolve as the organisation hits key inflexion points, but the earlier you understand what actions are needed, the faster you can unlock progress.

Even the strongest investment thesis and most meticulously crafted value creation plan needs leaders who can inspire, motivate and align their teams. Effective leadership shapes culture, builds trust, accelerates the adoption of new ways of working and ultimately enables the organisation to deliver on the investment strategy.

A practical view on delivering value across the lifecycle

Delivering value in PE-backed businesses typically requires focus across three core areas:

Laying the right foundations: how businesses move from today’s challenges to tomorrow’s opportunities by establishing a robust platform for transformation and growth, focused on overheads and infrastructure.

Driving transformation and growth: the levers that enable scalable, sustainable revenue expansion from commercial execution and operational excellence to digital enablement and strategic focus.

Achieving exit readiness: what it takes to prepare a business for a successful, high-value exit, ensuring it is positioned to articulate and evidence value at every stage of the process.

Understanding how these elements come together in practice is critical. Translating strategy into execution – and sustaining that momentum – is what ultimately determines success at every stage of the investment lifecycle.

If you’d like to discuss how these principles apply to your portfolio or investment strategy, please get in touch.

Latest related insights