Private equity firms and their portfolio companies move faster than anyone else in the market. In our 25th Annual CEO Survey, 70% of PE-backed US CEOs noted that their companies take only three months to approve a major initiative and 58% of CEOs reported that it only takes an additional three months to get resources on a new project. Compare this to non-PE-backed US companies: only 42% of their CEOs reported being able to approve an initiative within three months and only 30% can devote resources to a project within three months.
Lesson for PE-backed companies:
Speed is your competitive superpower
Apply this strength across the investment life cycle. Portcos should be prepared to move this quickly on everything from diligence to exit. Other companies often struggle here, and if you can make rapid decision-making into a broader cultural value, you’re likely to create a competitive advantage.
PE-backed companies now often lag behind both their US competitors and the global stage in addressing ESG concerns. For example, PE-backed firms are half as likely as their non-PE peers to cite social inequality as a top concern. Similarly, PE-backed companies are less likely than others to say that they’ve made a carbon-neutral or a net-zero commitment. There are many reasons for this: for example, 61% of PE-backed respondents said their sector doesn’t have an established decarbonization approach. But at the end of the day, the explanations may not matter. PE market investors, from pension funds to endowments, are making it clear that ESG has become a priority.
Lesson for PE-backed companies:
If you downplay ESG, you can miss a big opportunity to create value
PE-backed companies can’t wait to meet the market on ESG demands. We have found that “eco-friendly” actions can actually be more cost-effective than their alternatives. Meanwhile, European regulators are already moving toward an ESG rating system on funds. PE firms will likely limit their pool of potential investors if their portcos don’t make expected investments in ESG.
PE-backed companies ranked cybersecurity as their biggest global threat this year, even ahead of the pandemic and macroeconomic volatility. PE-backed companies see cyber risks impacting their ability to sell products and services (70% of US PE-backed CEOs), develop products and services (45%), innovate (40%) and raise capital (33%).
Lesson for PE-backed companies:
Customers and stakeholders have high expectations to mitigate cybersecurity risks
PE-backed companies should act now to deal with the cyber risks that may already be knocking at their door. How you handle and protect data will be under heavy scrutiny by potential buyers and the market at large. A little spend now may help prevent a big incident later. One complication: many smaller companies may not have developed effective plans to prevent or remediate the growing cyber threat.