The global PE market is growing exponentially. According to Preqin, global assets under management are expected to reach USD 9 trillion by 20251). While this growth trajectory is a sign of the sector’s resilience, it also highlights the increasing competition for attractive investment opportunities. With more capital available for fewer transactions, average purchase price multiples have skyrocketed, making traditional value creation through financial engineering and market timing more difficult.
This is also reflected in a recent survey of PE professionals where 73% of respondents continue to view operational improvements as the most important tool for PE investors to increase return on capital. At the same time, 55% of PE investors state that they are missing their return targets and 74% of respondents emphasize the importance of new value creation levers2). This study underscores current market developments and shows that traditional approaches to scaling the business and increasing operational efficiency are no longer sufficient to achieve investors’ ambitious goals.
Despite its increasing relevance, the venture builder approach is still a rarely used way for private equity companies to create value and meet investors’ return requirements. It is not one of the traditional levers used by PE firms and a niche in the field of operational engineering. However, past projects show the potential for PE firms and current market developments suggest that venture building projects in portfolio companies are a good fit. Instead of crafting businesses from the ground up, venture building strategically aids existing portfolio entities in navigating and capitalizing on new market opportunities or technological advancements. This approach helps shield PE-owned companies from the vagaries of economic downturns and the intensifying arena of competition.Venture building extends beyond merely spinning off new business concepts; it embodies a comprehensive examination of the portfolio company’s entire ecosystem and the existing assets. Typically, assets can be categorized into the following seven categories and should be leveraged at its maximum.
These assets ultimately lay the foundation for a portfolio’s unfair advantage towards its competitors. It cannot be easily replicated or bought by competitors. It’s the edge that gives a company a dominant position in the marketplace and is defendable over time, contributing to long-term success.
Eisbach Partners, with its extensive venture building expertise, is at the forefront of this transformative approach. We work with PE firms to identify and capitalize on new opportunities. We apply our entrepreneurial thinking and operational capabilities to build and develop business that complements and enhances the value of portfolio companies. To do so, three key questions can be asked that lead to value enhancements for companies:
Eisbach Partners’ unique three-phase approach to building business demonstrates a comprehensive and customized strategy for unlocking value in portfolio companies. This structured yet flexible approach ensures that each company is not only thoroughly understood, but also ideally positioned for business growth. Do you need an example on how this could look like? Check out our Case Study CASTFAST for Römheld&Moelle.
In the ever-evolving private equity landscape, the shift towards venture building emerges as a strategic response to increasing market complexities and competition. This approach not only addresses the challenges posed by economic fluctuations and the imperative for digital transformation but also taps into the potential for innovative growth and diversification. Contact us now directly via our website and don’t miss your opportunity for value creation in your portfolio companies!
Preqin (2020), Future of Alternatives 2025: Private Equity AUM Will Top $9tn in 2025
PWC (2023), Private Equity Trend Report 2023
S&P Global (2023), European private equity holding periods extend as exit activity slumps
Let’s embark on a journey of sustainable growth together! If you’re a decision-maker at an SME or larger corporation and are planning to create a sustainable growth business, let’s connect. Reach out for a conversation on how we can help your business grow by harnessing your dormant assets with the power of AI.
Drop us a message on talk@eisbach-partners.com or our contact form.
Eisbach Group GmbH
Office Munich
Tal 43
80331 Munich
