How value creation in a private equity portfolio company looks in practice
A PE fund buys a company, and then what? In practice, it's a series of specific actions spread over time. The first step is usually to bring order – implementing proper budgeting, clear KPIs, and monthly reports, because many Polish companies simply don't have these. The fund operator meets with management monthly, checks the numbers, and together they make decisions: do we acquire a competitor, invest in a new production line, or perhaps reduce costs? Often, the "buy and build" strategy is key – the fund helps the company acquire smaller competitors and build a market leader. And now the latest trend: more and more funds are using AI to streamline processes and find ideas for increasing profits, because a company with well-implemented AI is simply worth more upon sale.
Why value creation doesn't always translate into results in portfolio companies
Problem 1: Long-term investments, short-term valuation
You buy a manufacturing company for 50 million. You see that if you invest 5 million in automating the line, EBITDA will jump by 3 million annually in 18 months. A great deal – the IRR looks fantastic. The problem? In a year, the fund is approaching the end of its investment period, and you need to look for an exit. You put the company up for sale. The buyer opens the data and what do they see? Lower EBITDA than a year ago (because the project is just getting started), a new loan (because you financed the investment), and implementation costs in the profit and loss statement.
You created value, but it hasn't yet translated into the numbers. And the buyer pays for numbers.
Problem 2: Digital transformation that transforms nothing
You've probably seen this a hundred times. A company spends half a million on CRM, hires a Chief Digital Officer, and gives presentations with PowerPoints full of arrows and clouds. A year later: the sales team is back to Excel, the system is dormant, and the only difference is higher costs. During due diligence, the buyer asks specifically: "how much did the margin increase?", "how many people did you save?". The answer: "we are in a phase of transformation" convinces no one. Without hard data, there is no higher valuation.
Problem 3: You improve profits, the market changes multipliers
You work hard for two years. EBITDA grows from a 12% to an 18% margin. Great job. Except that in the meantime, multipliers in your sector have fallen. Interest rates have gone up, sentiments have changed. Your company is objectively better, but worth less. It's not your fault, but the outcome is the same.
Problem 4: AI on slides, not in financial results
You run pilots, test ChatGPT, publish case studies on LinkedIn. Management talks about AI at every meeting. The buyer during due diligence asks: "How much did you save thanks to AI?". The answer: "We are experimenting, we have 3 pilots, the team is trained." Zero hard numbers. Zero documented savings. AI as a buzzword does not increase valuation – only what is visible in EBITDA counts.
What is the role of a private equity fund in creating operational value
A fund doesn't just provide money – it provides access to proven solutions from other portfolio companies and a network of experts who have seen the same problems dozens of times. The operator comes with specific tools: ready-made reporting models, a list of trusted IT providers, contacts to managers who have already undergone a similar transformation. In practice, it often looks like this: "In three of our other companies, we implemented the same WMS system and we already know all the pitfalls – we'll give you a playbook and contact to an integrator who will get it done in 4 months instead of 12." Value lies not in the knowledge of "what to do," but in the knowledge of "how NOT to mess it up" – the fund has already paid for all the lessons on other projects.
What organizational barriers most often block value creation in practice
The management team of the previous owner stays on board and secretly still believes that "their way worked for 20 years, so why change" – they treat every fund initiative as a personal attack.
IT systems are so archaic that even basic KPIs have to be collected manually from Excels sent by email – there's no chance for quick data-driven decisions. The company culture is "we've always done it this way" and fear of responsibility – no one wants to be the one who approved a change, because if it doesn't work out, they'll be blamed.
And on top of that, silos: production doesn't communicate with sales, finance doesn't understand operations, IT operates in isolation from the business – each department has its own goals, and no one looks at the bigger picture.
How to approach value creation to support EBITDA growth
Personally, I don't fully understand this fascination with EBITDA – even as a finance person. Or perhaps precisely because I've seen many companies with beautiful EBITDA, under which hidden costs were labelled "below the line." Value cannot be created through a company's accounting tricks.
The second issue is investments and actions that don't align with exit timelines. I know... it sounds bad, but that's how PE works. You buy a company, transform it, and sell it. The transformation must be completed before the sale, so that the effects are visible.
And the last point for today – the AI hype. Implement AI wisely. A company's value won't increase just because someone spent a lot of money on AI initiatives. Like any other project, these expenditures must also generate a return on investment and increase operating revenues.
Value creation in a portfolio company often diverges from the result at exit, because long-term investments don't have time to show up in the numbers, digital transformations end up as higher costs without effects, and changes in market multipliers eat away at operational improvements. A PE fund brings value not through capital, but through proven playbooks and the knowledge of "how not to mess up" implementations – the problem is that organizational barriers (management resistance, archaic IT, a "we've always done it this way" culture) block most initiatives. The solution? Choose only projects that will show an effect on EBITDA before sale, document everything with hard data from day one, and forget about the AI hype – only what increases revenue or lowers costs matters.
