The two key messages from the PEI Operating Partner forum came through loud and clear this year:

• Every PE firm needs an Operating Partner strategy. The structures vary, but LPs now insist that someone is covering the role.
• As the Operating Partner role has become more strategic for PE firms, the focus of the role has matured from cost cutting to sales effectiveness and now onto supporting and driving commercialization and Big M strategic Marketing.

I have attended 5 of the last 6 PEI Operating Partner Forums.  During that time, I have seen the role of Operating Partner change significantly.  When I first started attending, Operating Partners (OPs) were evolving from cost-focused executives in residence to starting to work with Deal Teams on Value Creation Plans.  At that time, being involved in fund raising and participating in LP meetings was an aspiration.

EBITDA is not just one of our favorite acronyms in the Private Equity world, it’s the basis of value.  Purchase prices are based on EBITDA and sale prices are based on EBITDA.  Operating Partner groups and Resource groups came into existence a few years ago because PE firms recognized that they could add resources and expertise to help their portfolio companies grow EBITDA and earn a better exit.

During a recent private equity forum in New York City, operational partners came together and discussed industry concerns at length, including a particularly pressing hot topic. PE fund competition is fierce — and that's skewing the way EBITDA affects returns and heavily influencing what it takes to come out ahead at an investment's exit point. 

Industry data research center Preqin reports that private equity managers have raised approximately $260 billion so far in 2017. This amount is predicted to surpass $369 billion by end of year, breaking the PE fundraising record set in 2007. The recent flood of money flowing into PE funds is driving up purchase prices to a point that renders superior returns much harder to achieve — and strong EBITDA growth in and of itself is no longer sufficient for success.

Ever had a portfolio company that ate up every bit of advice you had on how they could run better, but could not seem to grow?  We at Chief Outsiders see this all the time.  Often the best run companies have the hardest time growing.  It’s a classic challenge, especially in the B2B world where engineers who run companies fall in love with the thing they make or the service the deliver… or simply with the technology they love. 

One of my favorite areas of discussion with Private Equity Operating Partners is how they use their past experiences to add value to portfolio companies when they may not be an industry expert. I recently had a chance to have a conversation with Dave Logan who has been an Operating Partner for the last 10 years working with both the Cleveland based Riverside Company and the Boston based Fort Point Capital Partners. Chief Outsiders has had the opportunity to work with Dave on portfolio companies owned by both of these firms.