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The Rising Imperative of Value Creation in Private Equity
How PE sponsors are creation value in their portfolios in the current Economic environment.
Introduction
The private equity landscape has entered a new era — one shaped by tighter capital markets, subdued macroeconomic growth, and elevated entry valuations. In this evolving environment, the traditional levers of outperformance, such as multiple expansion and financial engineering, have lost much of their potency. What has emerged in their place is a clear and urgent emphasis on value creation as the cornerstone of sustainable returns.
Investors today face a convergence of structural headwinds. The extended period of low interest rates that once made leveraged buyouts highly accretive is over. Meanwhile, rising inflation, regulatory complexity, and more cautious lenders are reshaping the cost and availability of capital. At the same time, increased competition for high-quality assets has driven up purchase price multiples, making it more difficult to generate alpha simply through arbitrage or timing.
In this context, private equity firms can no longer rely solely on market beta or favorable entry/exit dynamics. Instead, the ability to drive operational improvement, margin expansion, digital transformation, and topline growth has become the primary differentiator of performance. Firms are now expected to act not only as capital providers but also as transformation partners — bringing hands-on support to unlock latent value within portfolio companies.
The changing return dynamics are evident in recent exit data. As shown in the chart below, the proportion of deal value attributed to operational improvements has steadily increased, overtaking both leverage and multiple expansion as the main source of returns. This trend underscores a broader industry pivot: value creation is no longer a subset of the investment thesis — it is the thesis.
For investors, this shift demands a deeper focus on operational expertise, sector specialization, and post-close execution discipline. For portfolio companies, it raises the bar for management teams, performance tracking, and partnership expectations. And for the industry as a whole, it signals a transition from financial engineering to true business building.
Zooming in: On-the-Ground Levers Driving Today’s Value Creation
As the industry shifts from multiple expansion to operational value creation, investors are turning their attention to what is actually driving results inside portfolio companies. That means moving beyond headline strategies and into the weeds: how teams are improving margins, optimizing GTM, streamlining back-office functions, or enhancing talent strategies.
To better understand where firms are placing their bets — and how value creation strategies are evolving in practice — we ran a series of short surveys with senior professionals across our network. The goal: identify the most common initiatives, how they are being measured, and where GPs see the biggest performance upside.
Below, we unpack three core dimensions where value creation is being redefined.
The Most Important Levers for Value Creation in Private Equity Deals
In today’s increasingly competitive and capital-constrained private equity environment, value creation has become not just a priority—but a necessity. With elevated entry multiples, tighter financing conditions, and persistent macroeconomic uncertainty, firms are under growing pressure to generate returns through operational and strategic transformation rather than financial engineering alone.
To better understand how industry leaders are adapting, we conducted a proprietary survey asking: “What is currently the most important lever for value creation in private equity deals?”
The results—broken down by stakeholder group—highlight a range of strategic priorities, from operational efficiency and commercial strategy to digital enablement and leadership alignment. Together, these insights offer a snapshot of how different players across the deal ecosystem are redefining their value creation playbooks in 2025.
Key Findings from the Survey
Operational Efficiency and Cost Reduction Remain Foundational
Among all respondents, 27% identified operational efficiency and cost reduction as the most critical lever for value creation. This priority is even more pronounced among corporate development professionals (36%) and bankers (28%), reflecting a clear consensus: in an environment marked by persistent inflationary pressures and ongoing supply chain volatility, improving internal efficiency and managing costs are essential to safeguarding margins and ensuring long-term competitiveness.
Pricing and Commercial Strategy Gains Prominence
Another 27% of respondents highlighted pricing and commercial strategy as their top value creation lever. This area holds particular weight for corporate development professionals (36%) and bankers (33%), signaling a shift toward more proactive revenue management. As cost levers become harder to pull, margin expansion is increasingly tied to pricing discipline, go-to-market optimization, and commercial excellence—core strategies for driving EBITDA growth in today’s market.
Digital Transformation and Tech Enablement Take Hold
Digital transformation and technology enablement were cited by 23% of respondents, with particular traction among PE sponsors (27%) and bankers (28%). As digital disruption continues to reshape industries, firms are embracing tech-led solutions for automation, advanced analytics, and enhanced customer experience. Technology is no longer seen as a support function—it is now a key lever of differentiation and scalability in portfolio company operations.
Talent Upgrades and Leadership Alignment: A Consultant's Lens
For consultants, the story is different: 42% identified talent upgrades and leadership alignment as the most important lever—far more than any other group. This perspective underscores the belief that enduring value is built on the strength of people, not just processes. From aligning leadership incentives to embedding high-performance cultures, consultants view human capital as a central driver of transformation and enterprise value creation.
Implications for Private Equity Practitioners
Holistic Value Creation Is Essential: The results highlight the need for a multi-pronged approach that balances operational excellence, commercial strategy, digital innovation, and leadership strength. No single lever is sufficient on its own.
Context-Specific Strategies Win: Each stakeholder group brings a different lens—PE sponsors gravitate toward operational and digital tools, while consultants emphasize organizational health. The most effective strategies are tailored to the unique circumstances of each portfolio company.
The Playbook Is Evolving: Traditional cost-cutting measures are being supplemented—and in some cases replaced—by more strategic and forward-looking value drivers. The firms that master integration across these levers will lead the next chapter in private equity outperformance.
Strategic Takeaway
Value creation in private equity is no longer about pulling one dominant lever—it is about integrating multiple disciplines into a coherent strategy. Operational rigor, commercial precision, digital agility, and leadership alignment must work in concert. As the market continues to evolve, firms that can blend these levers dynamically and contextually will be best positioned to unlock alpha in the next wave of private equity.
Protecting the Bottom Line: Where PE Is Doubling Down in a Volatile Market
Private equity strategies are being stress-tested like never before. With persistent inflation, rising input costs, and uneven demand recovery across sectors, firms are being forced to refocus on margin resilience. The pressure to protect and expand EBITDA margins has become a defining theme—one that stood out clearly in our recent PE150 microsurvey.
Just two weeks ago, we asked the market to identify the most important levers for value creation in today’s deals. The responses revealed a striking consensus: Operational Efficiency and Cost Reduction, along with Pricing and Commercial Strategy, now rank as the top priorities across stakeholder groups. In a climate where topline growth is less predictable, value creation is shifting decisively toward bottom-line optimization.
Building on that insight, our latest survey asked a natural follow-up:
“Where are you most focused today to protect or expand EBITDA margins?”
Across 118 respondents — including PE Sponsors, M&A Development professionals, and Bankers — two priorities clearly stand out:
Strategic Pricing and Margin Analytics (35.6% of all respondents)
Supply Chain Optimization and Cost Control (28.8%)
Together, these account for over 64% of the market’s current focus, underscoring the emphasis on commercial excellence and operational discipline.
Interestingly, PE Sponsors exhibited a broader distribution of strategies: while 28.6% prioritize pricing, a notable 23.8% each are also leaning into SKU Rationalization/Product Mix Shifts and Operational Restructuring/Footprint Realignment. This reflects their need to drive structural changes across portfolios.
M&A Development professionals, by contrast, show the strongest alignment: nearly 77% are concentrated on pricing and supply chain levers, mirroring the broader market shift towards efficiency.
Bankers, who often influence deal positioning and readiness, are most bullish on pricing (41.7%), reinforcing its importance in current value narratives.
The takeaway? The market is moving from broad-based value creation to surgical margin protection and expansion. With inflationary pressures lingering and demand volatility persisting, mastering pricing and costs is no longer optional — it is the new core of private equity playbooks.
The Macroeconomic Pressure Cooker: Why Margins Matter More Than Ever
Private equity’s sharpened focus on margin expansion and operational levers is not occurring in a vacuum — it is a direct response to a persistently challenging macroeconomic backdrop. Inflation, disrupted supply chains, and elevated uncertainty around input costs and pricing dynamics have created a new reality: playing defense is now a form of offense.
Inflation Is Down — But Not Gone
While headline inflation has eased substantially from the peaks of 2022, the month-over-month swings in consumer prices tell a more nuanced story. Volatility in the Consumer Price Index (CPI) has persisted, with certain months still registering sharp increases or unexpected declines. This level of fluctuation is making it harder for portfolio companies to forecast costs, negotiate supplier contracts, or price products and services with any real confidence. In other words, firms can no longer assume a stable input cost environment—even if the year-over-year figures look benign.
The takeaway? Even as the overall CPI trend appears to be normalizing, underlying cost variability is still disrupting P&Ls, creating added pressure on operators. For PE-backed companies, that means stronger pricing governance, tighter margin controls, and smarter procurement strategies are more important than ever.
Inflation Expectations Signal Sticky Pressure
Further complicating matters, inflation expectations among consumers remain elevated and accelerating, particularly for near- to mid-term horizons. As shown in the University of Michigan data, expectations have surged sharply in recent months—reaching levels not seen since the post-pandemic peak. This is not merely a data anomaly; it is a behavioral shift with operational consequences.
Rising inflation expectations are shaping how businesses set prices, negotiate wages, and manage supplier relationships. In private equity portfolios, this translates into persistent upward pressure on cost structures — from raw materials to labor and logistics. It also raises the bar for pricing power: companies must justify increases to increasingly value-sensitive customers while simultaneously absorbing more expensive inputs.
The takeaway is clear: inflation is no longer a temporary disruption — it is a strategic variable. Firms cannot simply wait for price pressures to fade. Instead, they must build margin resilience, reinforce cost discipline, and invest in pricing agility under the assumption that inflationary sentiment is becoming structurally embedded across the economy.
Supply Chains: The Recovery That Never Fully Landed
In theory, supply chain normalization post-COVID should have offered a margin tailwind. In practice, the global logistics reset remains incomplete and uneven. While the Oxford Economics Supply-Chain Stress Index shows a clear decline from peak disruptions in 2021–2022, the current level still indicates above-normal strain — particularly for critical, globally sourced inputs like semiconductors, energy-intensive materials, and key industrial components.
Persistent volatility in lead times, cross-border delays, and unexpected chokepoints have forced many PE-backed operators into more conservative inventory strategies — tying up working capital and increasing exposure to price swings. Meanwhile, freight and input costs remain volatile, limiting the visibility needed for confident procurement and production planning.
These second-order effects are not only compressing margins but also eroding operating model efficiency. The result is a shift in how firms think about supply chain risk — from a short-term disruption issue to a long-term resilience challenge. Companies must now design systems that withstand ongoing volatility, rather than optimize for static, just-in-time models that no longer reflect economic reality.
Why This Matters for Value Creation
For private equity practitioners, the implications are clear: macroeconomic uncertainty is not easing — it is calcifying. Inflation expectations remain high, supply chains are still under pressure, and volatility is being baked into the operating environment. In this new regime, the fundamentals of value creation are being rewritten.
Pricing and cost control are no longer tactical tools — they are strategic imperatives. Firms must actively manage input cost pass-through, deploy dynamic pricing models, and anticipate cost swings—not react to them. Static playbooks no longer suffice.
Value creation strategies must be resilient, repeatable, and rooted in real-time analytics. Traditional levers like procurement optimization or SG&A rationalization still matter, but now they must be layered with data-driven insights that adapt to rapid market shifts. What worked last year may not work this quarter.
Operational execution must assume external volatility as a constant, not an exception. From FX and energy shocks to supply chain disruptions and labor cost swings, portfolio companies must be built for agility. This means empowering local teams with decision rights, improving scenario modeling, and embedding redundancy where needed.
This backdrop explains why PE firms are doubling down on surgical margin plays—not just for efficiency, but for resilience and multiple expansion. The most sophisticated GPs are deploying predictive pricing tools, investing in advanced analytics stacks, and implementing end-to-end supply chain visibility platforms to stay ahead of risk.
More importantly, they are embedding these capabilities early in the hold period—turning macro headwinds into operational edge. In a world where volatility is structural, the winners will be those who can institutionalize adaptability.
Translating Strategy into Results: Where PE Still Struggles
As private equity firms increasingly focus on operational value creation to drive performance amidst inflationary pressures and evolving market demands, the ability to execute strategy is proving just as critical as the strategy itself. A recent survey of 126 professionals across banking, consulting, corporate development, and private equity sponsors sheds light on the most significant execution challenges in realizing value creation plans. The findings highlight distinct priorities and pain points across these different professional groups, underscoring the multi-faceted nature of operationalizing value in today's PE landscape.
The Dominance of Talent and Change Management for PE Sponsors
For private equity sponsors, "Talent gaps and change management resistance" emerged as the most significant execution challenge, cited by a commanding 57% of respondents in this category. This finding aligns with broader industry trends that emphasize the "people" aspect of value creation. Studies consistently show that successful private equity investments are often characterized by strong management teams and a culture that embraces change and operational improvement. McKinsey, for example, highlights that human capital initiatives, including talent development and organizational design, are crucial levers for value creation in private equity, often yielding significant returns when executed effectively. The survey results suggest that securing the right leadership and ensuring their buy-in and ability to drive change within portfolio companies remains the paramount concern for those directly responsible for managing PE assets.
Data Quality: A Persistent Challenge Across the Board
While talent and change management top the list for PE sponsors, "Data quality and limitations in performance tracking" stands out as a pervasive challenge across many professional groups. Overall, 33% of all respondents identified this as the most significant hurdle. Consultants, in particular, feel the brunt of this issue, with 46% citing it as their primary concern, followed closely by bankers at 35%. This underscores the critical need for robust data infrastructure and analytical capabilities to accurately measure performance, identify opportunities, and track the impact of value creation initiatives. In an environment where data-driven decision-making is key, the inability to access clean, reliable, and timely data can severely impede a firm's ability to implement and monitor its strategies. The increasing complexity of financial markets and the rapid pace of change demand real-time insights, making high-quality data an indispensable asset for effective value creation.
Technology Integration and Alignment of Leadership
"Technology integration and legacy systems" also present a notable challenge, particularly for corporate development professionals, 33% of whom identified this as their biggest obstacle. This reflects the inherent difficulties in integrating disparate systems, modernizing outdated IT infrastructure, and leveraging new technologies to enhance efficiency and create value within acquired entities. As digital transformation continues to reshape industries, the ability to effectively integrate technology becomes a significant competitive differentiator. Meanwhile, "Aligning portfolio company leadership with PE value plans" is a consistent, though not always primary, concern across all respondent groups. Roughly one-fifth of bankers, consultants, corporate development professionals, and PE sponsors identified this as their main challenge. This suggests that while not the absolute top concern for any single group, ensuring that portfolio company management is fully onboard with and committed to the private equity firm's strategic vision remains a fundamental component of successful value creation.
These findings highlight that while data and technology are critical enablers, the human element—comprising talent, effective change management, and leadership alignment—often represents the most significant execution hurdle in private equity value creation. Addressing these challenges effectively requires a holistic approach that combines strategic talent management and robust change leadership with continuous investment in data infrastructure and technological capabilities.
Conclusion: Redefining Value Creation for a New Era
As the private equity industry navigates an era marked by inflation, capital constraints, and uncertain demand signals, one truth is becoming increasingly evident: value creation is no longer a supporting function — it is the core engine of returns. Gone are the days when financial engineering and timing alone could generate outperformance. Today’s leading firms are those that can combine commercial rigor, operational depth, and strategic clarity at every stage of the investment lifecycle.
Our microsurveys reveal a consistent throughline: pricing discipline, cost efficiency, digital enablement, and talent transformation are no longer optional initiatives but foundational capabilities. They are also interdependent — execution excellence depends not just on smart strategy, but on overcoming data limitations, aligning leadership teams, and embedding change-ready cultures across portfolios.
At the same time, the diversity of approaches across sponsors, bankers, consultants, and corporate development professionals suggests that there is no single formula for success. The most effective firms are those that can adapt their playbooks, tailor interventions to the realities on the ground, and mobilize cross-functional expertise quickly and decisively.
As macro pressures persist and investor expectations remain high, value creation must continue evolving — not just as a post-deal workstream, but as a differentiating capability embedded throughout the firm. For GPs, LPs, and portfolio leaders alike, this moment presents both a challenge and an opportunity: to shift from reactive problem-solving to proactive value engineering, and to build the next generation of outperformers on a foundation of operational excellence, strategic focus, and execution resilience.
Sources and References:
EY - How Value Creation in Private Equity Is Evolving
PE150 - Top Value Creation Levers in Private Equity
PE150 - How Private Equity is Protecting EBITDA Margins Amid Inflation and Uneven Demand
PE150 - Execution Over Strategy: The Human and Data Hurdles in Private Equity Value Creation
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