Whereas once LPs and investors may have been satisfied with top-line financial metrics, sponsors are now being asked to do even more to illustrate, in greater detail and granularity, the impact of their value creation efforts. 

The growing demand for Value Attribution in private equity is, in part, a necessity of current market conditions and economic uncertainty, but it also provides the opportunity for PE firms to embrace a more data-driven approach that boosts operational alpha.

Increasingly, sponsors must drill down and attribute each dollar value of growth to a specific strategy, value creation activity or initiative.

Today, it’s about showcasing methodologies, not just numbers, that have been proven to create value. And investors expect to receive this level of insight and detail from sponsors of all sizes and states of maturity, not just the largest and most established. 

Attributing Value Creation Efforts to Growth

To effectively attribute value creation efforts to growth, PE firms need to capture both high-level metrics as well as the underlying elements and potentially hundreds of different activities and tactics that were undertaken against each individual component of the plan. 

To track operational, financial, and strategic impact requires a structured, repeatable framework to measure and compare data across portfolio companies, growth levers, industries, and market dynamics to deliver actionable insights. Or in other words – pinpoint which strategies and initiatives drive real value, where, when and why.

Relying on manual methods, Excel, and fragmented systems is becoming increasingly incompatible with the need to deliver effective value attribution. Instead, firms are turning to  Value Creation Management Platforms (VCMP), like Maestro, to provide the necessary structure that can illustrate exactly how top-line numbers were achieved, who was responsible for driving outcomes, the likely outlook moving forward, and so on. 

The Growing Importance of Business Intelligence 

Business intelligence (BI) capabilities have also become increasingly important, and sufficiently advanced, for quantifying Value Creation efforts. With data centralized, and consistent reporting and benchmarking across portfolio companies in place, a VCMP with embedded BI can act like a centralized cockpit, with a 360-degree view of real-time, integrated data across all aspects of portfolio performance.

BI embedded within the Maestro Value Creation Platform enables firms to gather all available data in one place, display it in an easily digestible format, and allow stakeholders to analyze and interact with the data and drill down to any desired level of detail. 

At Maestro, we enforce a top-down standard, ensuring that KPIs, status reports, and all data related to value creation plan execution are captured in a consistent manner across all portfolio assets, enabling apples-to-apples comparisons. 

As a result, sponsors build more detailed playbooks and case studies to understand strategies that worked in the past and better determine which levers to pull as new investments join the portfolio. Our clients also capture unstructured data around softer value creation projects that may be more difficult to measure, such as ESG efforts and other sustainable investing initiatives. 

Quantifying Value Creation to Replicate Success

Value attribution capabilities also have a critical role to play during hold periods. Operating and management teams can justify performance and provide explanations when growth in a portfolio asset has been slower than expected or when the timeframe for exit or IPO is delayed. 

Today, PE sponsors win by clearly demonstrating how they were able to increase the value of an asset and projecting confidence to replicate past successes. 

Those unable to articulate their detailed story are likely to be left out in the cold by increasingly discerning LP investors.

With Maestro, PE Firms – large and small – get a proven single source of truth that marries financial and operational metrics with underlying detail and broader context and analysis needed to deliver a holistic view of value creation impact.

As always, if you’re interested in learning more about how Maestro helps quantify value attribution and our latest business intelligence capabilities, get in touch.