Our takeaways from the Real Deals Value Creation Conference 2022

On Thursday 3^rd November, Humatica had the pleasure of sponsoring and attending the Real Deals Value Creation Conference. The full-day event benefitted from the participation of deeply experienced delegates and representation of many prestigious GPs. In fact, we were happy to be in the same room with GPs we have supported in accelerating value creation for their portfolio companies, such as Baird Capital, EQT Partners, PAI Partners, Summa Equity, Triton Partners and more.

The agenda was packed with interesting panels covering topics that are at the forefront of attention for investors and operating partners – including value creation planning, value creation through technology, data leveraging for value creation, value creation in distressed companies, managing macro impact in portfolio companies, compensating and incentivising management teams, ESG monitoring, and cyber diligence.

Of the many topics discussed and insights exchanged, here we have summarised our key highlights:

Navigation of the unpredictable markets and macro challenges: The pandemic, the war in Ukraine, the Energy crisis, and the increasing interest rates are only a few of the challenges that GPs and management teams have had to deal with recently and will need to continue to navigate going forward. Panellists agreed that on one hand such adversity calls for extra caution, and that is why elements of a more “defensive” approach have inevitably emerged, such as more focus on budget and cost management, as well as more frequent planning and KPIs monitoring – especially as “cash is king”. At the same time the current landscape has also created opportunities to pursue a more aggressive strategy, with “Buy & Build” models and M&As thriving for those with the know-how and the experience to capture the momentum created by the uncertainty. In any case, it is definitely a period where GPs are prioritising value creation over deal flow and want to make sure that they both protect and prepare their companies to master the challenging landscape.

The importance of the management team: No surprise, the most frequently discussed topic of the conference – regardless of the agenda item each time – was the management team and its critical role in value creation and ultimately the success of any deal. Panellists emphasised that in all deals – and especially during challenging times – it is paramount that management teams have a clear vision of what they want to achieve, focus on the elements they can control, and have a “when life gives you lemons, make lemonade” type of mentality. The most successful management teams are those that manage to build resilient organisations, and what distinguishes them in the eyes of investors is their ability to “focus and execute” by enabling their teams, rather than their personal expertise in the industry at hand.

The evolving role of technology: Another “no surprise” topic here – as GPs and management teams both do everything in their power to take advantage of the abundance of technological offerings of our times to increase the effectiveness and efficiency of their teams. Digitalisation, increased automation, integration and streamlining of systems as well as moving to the cloud are only a few of the most popular projects that companies and investors are currently undertaking. And, of course, there is always the target of effectively and efficiently collecting and analysing data of every shape and form to identify trends, connect the dots and drive good and informed decision making. What was interesting to observe is that in addition to these well-known topics, there is more and more appetite from stakeholders to leverage technology in order to impact the valuation of the portfolio companies and increase their multiple through developing digital and SaaS solutions for their clients – thus entering the wider tech sector with their offering. Watch this space.

The intensity and rigor of value creation planning: It was interesting to confirm that value creation planning now starts earlier and earlier in every deal. GPs are rigorous and demanding, and management teams of target companies have to collaborate with the GPs more and more proactively pre-deal, to the point that when deals are ultimately over the line the value creation journey has already started and the trust between GP and management is already there. Due diligence is becoming even more critical, sophisticated and demanding. It is no surprise that in the past commercial, financial and legal due diligence would suffice, whereas now specialisation is in high demand and through the roof, with specialist advisers for organisational, political, tech, digital, environmental and product due diligence participating in many deals – to name a few.

A big question: It was in the “Managing macro impact on portfolio companies” panel where, after discussion, GP panellists made the observation that most of their portfolio companies have managed to navigate any challenges so far quite successfully. This comes as a result of various factors, including strong management teams and strong support from the GPs themselves; investments in companies and sectors such as software, tech, healthcare, and services, that are not impacted so much by the energy crisis and the spikes in the prices of primary goods and raw materials – at least not as much as the retail and energy sectors; and expectations management, as many were prepared for a “total catastrophe” but were happy to see that it didn’t turn out “that badly”.
On the other hand, this same observation also raises big questions: have the challenges really been navigated successfully – and that’s the end of it? Or is it possible that the lag still hasn’t caught up? Are there any ripple effects that haven’t shown up yet that could impact the seemingly unaffected companies? How can the management teams be prepared for such “invisible” challenges? And, could it all still feel so “smooth” simply because we are right in the middle of the storm, rather than fully past it? Here are our views on what the future holds for private equity.

We’d like to thank Real Deals for a great event and all of the delegates and speakers for an excellent day packed with thought-provoking content and fantastic networking.