Upstream Advisory I Performance

PE Portfolio. Company Life Cycle

The journey from entry to exit

Change Better. We support companies to structurally improve their business…

Amidst the energy crisis our society at large and multiple companies are struggling. These times could lead to a potential conflict of interest between the company and its shareholders. In case you are Private Equity owned, the life cycle of PE funds is typically 7 to 10 years and is broken down in three stages : fundraising period, investment period and harvest period. Take notice in which period you are. Based on our experience, we share a structured approach to deal with being a PE Portfolio Company.

When you do Private Equity well, you're making companies more efficient

and helping them grow and become more profitable. 

The Company Life Cycle of a Private Equity Portfolio Company consists of three phases, as follows :


  • Design a business (organic) growth plan with an equity story to realize your ambitions

  • Optimize Capital Structure. Striking the right balance between debt versus equity is important. Cash is king and security of funds is important. Keep sufficient headroom and flexibility to manoever (macro) economic events. In general it is not in the interest of any stakeholder to start with too much leverage and becoming a structureally lossmaking company not being able to cover interest alike Hema. 

Value Creation

The main drivers of value creation are as follows :

  • Multiple play. Meaning buying an asset for (example) 5.0x EBIT and selling it for 7.0x EBIT. This could apply to the primary asset and also add-on acquisitions. Make sure you strike the best possible entry price. That is where you make your return later on, not by default on your sales price.

  • Repayment of bank debt (deleveraging). The value of the company will remain as is but the equity value will increase

  • Operational Excellence to drive cash flow optimalisation. Invest in mandatory IT systems, digitize where possible and invest in people  

Exit Strategy

Entry is only done with a crystal clear view on viable exit options. In case of the harvest period, execution will take a substantial amount of time from management, inhouse team (both time lost to focus on core activities) and numourous external advisors. Pick your project team members wisely. Please prevent any other M&A sell-side advisor or shareholder selling you a valuation fairytale.

As a result of the macro economic climite it will be challenging for private equity with a limited partnership structure to exit their portfolio companies against their IRR hurdle, prior to fund end of life (by default it is only possible to roll a limited portion of assets over into a new fund). In case an exit is not viable, recapitalisation could be an option to enable dividend payout, subject to sufficient leverage headroom.

In general, there are several exit routes from sale to a strategic buyer (trade sale) versus financial buyer (secondary buyout) to an IPO, Exit strategies vary over time and differ across European countries. Activity is meanly driven by the presence of a developed stock market (for small companies) and determined by market capitalisation, interest rates and GDP growth.

Reading List

Are you interested to learn more on why do exit strategies vary over time and differ accross European Countries? go here   

…with our head in the sky and feet in the mud