Portfolio Value Creation: How Financial Sponsors Are Moving the Value Creation Needle

With increased financing costs and economic uncertainty reducing exit opportunities over the past five years, financial sponsors have found themselves with elongated holding periods and a need to explore levers they can pull during the holding period to create significant value for their portfolio companies and ultimately, provide the financial returns their investors demand.

The holding period for private equity-owned businesses has reached a record high, with a median of 5.6 years according to Chief Executive, and 5.89 years according to S&P Global. This extended period is due to recovery from the Covid pandemic and current economic challenges like high interest rates and labor shortages. Depressed equity markets have led financial sponsors to hold onto companies longer, expecting improved market conditions.

General Partners (GPs) now face the challenge of creating additional value over longer holding periods. Through in-depth interviews with our Aon Mergers & Acquisitions and Transaction Solutions leaders, we found that there are various market levers that financial sponsors can use to enhance value and reduce risk, making assets more attractive at exit. Our experts also indicate that alongside traditional insurance solutions, there are opportunities in human capital efficiency, cyber security, ESG factors, and IP risk management. Balancing these strategies can increase portfolio company value and attract investors.