2024 PE Commercial Value Creation Objectives
2024 appears to hold much of the same for deal and operating teams. While deal-making optimism is growing, the fundamentals are unlikely to be in place for the engine to fire on all cylinders. Macroeconomic indicators (GDP, inflation, consumer spending, employment) are improving, but the cost of capital remains high, as do valuation expectations.
Alexander Group expects deal activity to focus on sourcing and evaluating fewer large-scale deals (including carveouts) and a higher volume of tuck-ins. This activity will pull some capacity away from portfolio value creation efforts, however working with management teams will remain the priority. There are rumblings that a flurry of deals is imminent based on lengthy hold periods and a need to deploy capital. If true, 2024 could look a lot different from 2023.
Rumblings aside, Alexander Group anticipates operating teams will continue to emphasize commercial fundamentals that were the hallmark of 2023. Deal and operating teams will pose questions in the following four categories to their commercial leaders in 2024:
1. Customer Profiles: Do you know your ideal customer?
- How has the profile changed considering M&A, new products, competition and other factors?
- How well do you understand each customer’s value, cost to acquire and cost to serve?
- How do you know you have a right to win?
2. Demand Generation: Where will your next lead come from?
- What channels are you using today to generate and nurture leads?
- How is each channel performing?
- How are you improving channel yield?
- What new demand generation capabilities are you investing in?
3. Profitability: What are you doing to improve your cost of sales and cost to serve?
- How are you using data and technology to improve commercial productivity?
- How are you adapting the go-to-market model and associated processes to maximize return?
- What impact do you anticipate from change initiatives?
4. Customer Experience: How are you investing to improve customer experience?
- What do customers say about you?
- What do they say about your competitors?
- How are investments in customer experience impacting your financials?
These questions will put pressure on management teams to make thoughtful investments and address deficiencies. To enable management teams, operating teams will invest in specialized talent. They will bring in new operating team members and onboard partners with a demonstrated track record. New operating talent and partners will focus on implementing digital infrastructure and deploying AI use cases. They will work with portfolio companies to build marketing capabilities that amplify the brand and drive the top of the funnel. They will collaborate with management to install game-changing customer success and service operations.
Operating teams will work with management to scope initiatives, build the business case, gain consensus, select third-party partners and launch projects. They will develop playbooks and accelerators for management teams to leverage on a self-serve basis to quickly get moving on initiatives.
2024 will feature much of the same as private equity firms wait for the deal machine to start cranking. Leading operations teams will take this window to prepare late hold stage assets for the market and fast track initiatives for those companies early in the hold. They will focus on commercial fundamentals including segmentation, ideal customer profiles (ICPs), demand generation, cost of sales, cost to serve and customer experience.