Unleashing change

Private equity firms need to be honest with themselves about their ability to tranform portfolio companies and derive the highest value from their investments, writes Hosein Khajeh-Hosseiny.

Over the past 10 years, the industry as a whole has gone through a major philosophical but a relatively minor practical transition. Most firms’ terminologies and strategies have significantly expanded but only a few have made the same leap in advancing their capability platforms.

A key question today is not whether many PE firms are correct in claiming corporate transformation as one of their value creation levers; because it undeniably has been one of their levers, since most of the PE firms since their inception have helped transform companies by the virtue of solving for governance problems and caring passionately about cashflows and margins.

The question is how much corporate transformation is unleashed? How great is the capacity of the PE firm to prudently unleash and engender substantial change.


Ten years ago we were in the minority advocating the industry’s need to embrace rigorous techniques for designing business innovation programmes and executing large corporate transformation plans so as to deliver resilient and substantial return to investments. Now, we are in the majority. But despite the enormous talents in the industry, only a few care to practise the necessary skills.

About eight years ago in our “Excellence in Private Equity” presentations, we showed how some were transforming companies really well, why it was essential in the US and to a more limited extent in Europe, and why some were not getting the most out of it. We also advocated the case for insightful strategic due diligence and rigorous post acquisition 100-day plans, plans which were well structured, coherent and distinctively informed. Our assertions and terminology were not mainstream then, they are now – which means many firms are a little behind the capability building curve.

Today, what firms need to focus on include a differentiated approach to strategising for the right deals, conceiving business innovations and executing relatively large corporate transformation programmes; they need to pay attention to the realism of their overall capacity for delivering robust performance in an uncertain environment; they need to examine their firm’s relative superiority, their value creation potential as embedded in their organisational and individual tools, techniques, systems and processes; they need to be objective about the adequacy and biases of their formal and informal enablers and leadership styles and strengths.

Generally, a private equity firm needs to objectively reflect with much humility and rigor on how it diagnoses, designs, aligns and executes a large integrated transformation programme, how it stays ahead of problems, how it achieves rigor and transparency in planning and execution.

When transforming the portfolio companies, a firm naturally reveals its strengths and weaknesses in transforming the way assets and resources are configured and optimised for maximising value. In transforming the management infrastructure, the processes and systems, it reveals its own depth, the granularity of its own thinking, its own commitments, priorities and value system.

There are substantial gains to the committed and the able funds. Today, we are experiencing a redefinition and a re-creation of the economic order.

Hosein Khajeh-Hosseiny is head of global private equity investments with Northgate Capital.