Delivering on

the promise of
value creation
2022 Market Insights Survey

KPMG International

home.kpmg
Foreword
Private equity activity and deal valuations are at Even when the threshold was lowered to hitting full
Top six insights
from the survey

Structural shift
historically high levels. In 2021, it is estimated that almost potential 75 percent or more of the time, still only about in value creation
8,000 private equity deals were completed globally worth one-third of firms were able to meet that benchmark. The
$800bn. Deal values were particularly strong in North reasons provided included delaying the value creation
America ($352bn) and Europe ($172bn)1. The returns for process, relying too heavily on traditional value creation To justify paying the increased The value of
private equity investors have also been impressive and levers, and failing to fully realize the advantages of multiples, private equity firms value creation
have drawn even more investment into the sector. digital transformations.
are under more pressure to
With higher deal volumes and higher valuations, When the data was examined, it also became clear that significantly enhance operational Evolution of value
however, comes higher expectations. To justify paying value creation is more important than ever. The value
the increased multiples, private equity (PE) firms are creation process is now happening earlier, crossing more value to achieve the desired creation levers

under more pressure to significantly enhance operational disciplines, and integrating more data. returns.
value to achieve the desired returns. This has led to
a sharper focus on value creation planning, requiring Now is the perfect time to challenge deal and operating Tech and digital
rise to prominence
a more comprehensive approach to enterprise-wide partners on preconceived notions of where value This has led to a sharper focus on
creation sits in the deal lifecycle. As one partner at a PE
transformation by leveraging an ever-increasing set of
firm said, “Generally, when we come second in a deal
value creation planning, requiring
value levers and a more disciplined and transparent
approach to execution. process, it’s because the fund who comes first has a a more comprehensive approach The growing
influence of ESG
more mature and well thought through value creation to enterprise-wide transformation
To better understand this evolving shift, KPMG plan, increasing their conviction in the asset and flexibility
researched the changing nature of the levers that are on valuation.” The findings show that over 70 percent of by leveraging an ever-increasing
Advanced analytics
driving value creation and the impact this is having on PE firms with US$1+ billion assets under management set of value levers and a more drive engagement
deal processes. In collaboration with Coalition Greenwich, (AUM) recognize that value creation planning is a key and insight
120 PE firms and portfolio companies headquartered differentiator in the bidding process.
disciplined and transparent
in the UK and US were interviewed during September approach to execution.
and October 2021. We asked a series of quantitative Traditional levers like buy and build and people and talent A new era of active
and qualitative questions to explore thoughts around remain central to many value creation strategies with Naveen Sharma, UK Head of Private Equity management
newer levers such as technological and digital KPMG in the UK
value creation. It was found that only around 1 in 10
PE firms feel they have reached the full potential2 on transformation; data and analytics; and environmental,
their investments 90 percent or more of the time. social, and governance gaining ground. Lessons for
the future

1
Prequin - 2022 Global Private Equity Report. Methodology and
2
‘Full potential’ - Reaching or exceeding the maximum target enterprise performance and valuation set for the business at the time of initial investment or purchase. acknowledgements

© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. Delivering on the promise of value creation
Foreword  hen reflecting on the majority of investments made by your firm, on average, how often do you
W
Top six insights
from the survey

Structural shift
There was a clear trend for more active engagement, in value creation
believe they achieve their full potential?
with three-quarters of firms saying they are ‘active’
or ‘very active’ in their investments. PE firms are also Just over one in 10 PE firms reach full potential 90 percent or more of the time.
recognizing the value that sector or asset-specific value The value of
creation professionals can bring, with many being value creation
brought in before or during due diligence the majority of
the time.
13% 12% 20%
40%
Evolution of value
The days of thinking about value creation only after creation levers
the transaction closes are long gone. Value creation 12% 17%
should be a key part of the strategy to build conviction
40%
and strengthen your position in a competitive process. 75%
Tech and digital
In today’s crowded market, the winners are engaging rise to prominence
in value creation planning and strategies much earlier, Over $100 Bn $11 - $100 Bn
digging deeper, and partnering closer with managers 27%
and advisors to help ensure that plans come to fruition
to help each investment reach its highest potential. 8% 12% 14% The growing
26% influence of ESG

We hope you enjoy this report, and we look forward to 44% 21%
discussing these topics and more with you during 2022. 38% 42% Advanced analytics
drive engagement
39% and insight
Naveen Sharma
Partner and UK Head of Private Equity
Total $1 - $10 Bn Under $1 Bn
KPMG in the UK A new era of active
$ AUM management

Rajesh Sennik
Partner, Value Creation practice lead
90%-100% 75%-90% 50%-75% Less than 50% Lessons for
KPMG in the UK the future

Source: 2022 Market Insights Survey

Methodology and
acknowledgements

© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. Delivering on the promise of value creation
Contents
01 02
Structural shift
05
The value of
07
Evolution of value
9
Tech and digital
Top six insights
from the survey in value creation value creation creation levers rise to prominence

13
The growing
16 18
A new era of active
22
Lessons for the future
24
Methodology and
Advanced analytics drive
influence of ESG engagement and insight management acknowledgements

© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved.
Top six insights from the survey
The research revealed the following six key insights:
Top six insights
from the survey

Structural shift
in value creation
1. Few PE firms are achieving the ‘full potential’
of their investments
3
2. Value creation planning is starting earlier,
going deeper, and having a greater impact on
3. Advanced analytics and sophisticated
value creation planning are driving more
decision-making competitive deal processes for attractive
— Only around 10 percent of PE firms feel assets The value of
they have reached full potential 90 percent or — Fifty percent of PE firms with more than value creation
more of the time on their investments US$10 billion of assets under management — Eighty percent of firms with AUM $10-100bn
(AUM) now activate their value creation plans believe that proper planning enables them to
— Reasons included delaying the value creation earlier in the deal process than three years ago increase their competitiveness in auctions
process, relying too heavily on traditional Evolution of value
creation levers
value creation levers, and failing to fully — More than 80 percent of these firms — Almost half of portfolio company execs
realize the opportunity and speed of business engage actively in value creation planning at or feel that the price paid for their business
model shift as the economy becomes ever before making the investment decisions, with was underpinned by specific value creation
more digital three-fifths of the largest firms developing assumptions Tech and digital
their plans even earlier, right at the very start rise to prominence
of deal evaluation

4. 5. 6.
Somewhat surprisingly, ‘buy & build’ and ESG is growing in importance for deal PE firms are bringing in external advisors The growing
influence of ESG
‘people & talent’ remain the top value consideration, but is not yet an established earlier to help achieve full value on their
creation levers, but ‘tech investment/ digital lever for value creation investments
transformation’ are rising rapidly as preferred
strategies — ESG factors are increasingly considered — External advisors are engaged before or Advanced analytics
pre-deal, whereas previously, they were a during initial due diligence more than 60 drive engagement
and insight
— Buy and build and people and talent post-deal consideration percent of the time
retrospectively and prospectively are the
two top value creation levers used by PE — Over 90 percent of firms with AUM over — When choosing outside consultants to help
funds across all fund sizes US$10 billion have declined an investment lead value creation planning, US firms favor A new era of active
due to ESG criteria deep sector expertise, while UK firms put management
— Technology and digital transformation are greater emphasis on track record
rapidly gaining ground and are expected — However, ESG is not yet considered one of
to be the third most important lever going the top five levers for value creation
Lessons for
forward, with significant focus on customer- the future
facing digital transformation, data analytics,
and cyber security

Methodology and
acknowledgements
3
“Full potential” - Reaching or exceeding the maximum target enterprise performance and valuation (e.g., stretch case) set for the business at the time of initial investment or purchase.

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Structural shift in value creation Top six insights
from the survey

Structural shift
Value creation planning is experiencing a dramatic shift. Rather Has the timing of when you have activated value creation planning on your investments in value creation
than creating and implementing a value creation plan after a
changed during the past three years?
deal closes, 50 percent of PE firms of AUM of US$10 billion or
greater are now initiating value creation planning earlier in the PE investors see timing of value creation shifting to earlier in deal cycle.
The value of
deal lifecycle than they did three years ago. value creation

Same now as before

3% 1%
Earlier Evolution of value
creation levers
Later in the process
In today’s competitive market, the Other
winners are engaging in value creation 44% Total Tech and digital
rise to prominence
planning and strategies much earlier, 52%
digging deeper, and partnering closer
with managers and advisors to help The growing
influence of ESG
ensure that plans come to fruition to
help each investment reach its highest
56% Advanced analytics
potential. 50% 50% 50% 50%
drive engagement
and insight
48%
45%
Rajesh Sennik, Partner, Value Creation practice lead,
40%
KPMG in the UK
A new era of active
management

Lessons for
the future
6%
2% 2%

Over $100 Bn $11 - $100 Bn $1 - $10 Bn Under $1 Bn Methodology and

acknowledgements
$ AUM
Source: 2022 Market Insights Survey

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The intensity of the planning is also much higher in the earlier Value creation planning in the deal lifecycle
stages. Value creation planning is actively pursued at or before
due diligence by 65 percent of all firms, and by 88 percent of All sized firms recognize the importance of starting 3% Top six insights
from the survey
the largest firms with an AUM of US$100+ billion. planning for value creation early in the deal lifecycle; 6%
larger firms have the most significant focus on value 6%
The message is clear: Value creation planning needs to be creation at the earliest point.
undertaken before the deal is completed, when there is 35% Structural shift
more room for maneuver. It is vital to secure access to an in value creation
existing repository of value levers, data sources, and analytical 19%
Total
techniques early in the process, so the value creation strategy
can be fully integrated into the investment plan. If value The value of
creation planning is left until post-completion, there is a much 63% value creation
higher risk that either the opportunity itself will be missed,
or, at the very least, it will be more challenging to realize its 30%
full potential. Evolution of value
creation levers

42%
38%
Tech and digital
rise to prominence
30% 30% 29%
25%
The growing
20% 19% 19% 20% influence of ESG

13% 13%
10% 10% Advanced analytics
6% 7% drive engagement
4% and insight
2%

Over $100 Bn $11 - $100 Bn $1 - $10 Bn Under $1 Bn A new era of active

$ AUM management

At the very beginning During initial due diligence As a part of the

Lessons for
of deal evaluation investment decision the future

Between signing and First 100 days post-completion As part of normal

completion of the deal operations of the business
Methodology and
acknowledgements

Source: 2022 Market Insights Survey

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Another key factor in the value creation planning process is Approaching cost and revenue in a balanced manner
the approach taken. Today, the largest firms overwhelmingly
take a balanced approach to costs and revenues when In terms of value creation, nearly half of all firms take a balanced view on revenues and costs. Top six insights
from the survey
developing their value creation plans. For the others, it is a
These results mirror KPMG’s internal research, which shows that those investments with a balanced approach
more even split between a balanced approach and a focus on
to value creation achieve 15 percent EBITDA growth, versus only 5 percent growth for those that consider costs
revenues, with only a minority focused on costs.
alone. With the right application, a balanced approach can help to distill potentially dozens of value creation levers
Structural shift
down to those few that can create the most value in the particular investment being analyzed. in value creation

We focus approximately The value of

value creation
9% equally on revenue and costs

We focus primarily on revenue

Evolution of value
We focus primarily on costs creation levers

Total 47%
44%
Tech and digital
rise to prominence

The growing
influence of ESG

75% Advanced analytics

drive engagement
and insight

50% 50% 49%

45% 47%
A new era of active
39% management

13% 16% Lessons for

12% the future
4%

Over $100 Bn $11 - $100 Bn $1 - $10 Bn Under $1 Bn Methodology and

acknowledgements
$ AUM
Source: 2022 Market Insights Survey

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The value of value creation Top six insights
from the survey

Structural shift
Value creation planning is becoming an increasingly important part The use of value creation planning in the bidding process over the past three years in value creation
of the bidding process itself. In the last three years, PE firms of all
sizes have seen a rise in the use of value creation planning in the Value creation planning has increased substantially across regions and AUM asset classes, in particular
bidding process. Firms with AUM greater than US$10 billion have across larger firms.
The value of
increased their use of value creation planning by 80 percent, while value creation
for firms with AUM between US$1 and US$10 billion, the increase
is almost 70 percent. Total 23% 40% 36% 1%

Evolution of value
creation levers
Over $100 Bn 25% 75%

Tech and digital

In response to increased asset prices, $11 - $100 Bn 40% 40% 20%

$ AUM
rise to prominence

we challenge our deal teams to find more

aggressive value creation levers to mitigate $1 - $10 Bn 23% 45% 29% 3%
The growing
compressed going-in base case returns. influence of ESG

Partner, PE firm, US$1 - US$10 billion AUM Under $1 Bn 18% 31% 51%
Advanced analytics
drive engagement
and insight

Why are firms starting sooner and moving faster? Because it United States 27% 32% 39% 2%
helps improve their chances of winning. The research shows that A new era of active
value creation planning improves competitiveness or pricing in management
United Kingdom 18% 47% 35%
the bid process more than 50 percent of the time. With so much
‘dry powder’ in search of the next big deal, company founders
are not only looking for investment, but also for strategies and Lessons for
focused execution capability that should come from having “the Increased substantially No change the future

right” PE shareholders to take their business to the next level.

This kind of added value is increasingly what makes bidders more Increased moderately Decreased substantially
competitive - and if you can be more competitive, you can win more Methodology and
opportunities. acknowledgements
Source: 2022 Market Insights Survey

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 Value creation planning increasing competitiveness in bid process
Value creation planning has a big impact on the bid process, enabling higher bids. Top six insights
As deals have become more competitive, having a from the survey
With improved bid pricing, firms can win more deals. The pressure is then on the winning
robust value creation process that is underwritten bidder to execute their value creation plan to drive performance. To achieve that, the value
into the deal allows us to pay more for deals creation levers should be properly identified, quantified, and actioned at the appropriate
Structural shift
time.
where we have a high conviction of our ability to in value creation

drive value. Of particular note, over 80 percent of PE firms with US$11+ billion AUM recognize
that value creation planning is a key differentiator in the bidding process. When combined
The value of
Partner, PE firm, US$1 - US$10 billion AUM with quantitative analytics, this enables firms to achieve more effective positioning value creation
in auction processes, which in turn helps to secure the most desirable investment
opportunities.

To what extent does value creation planning enable higher bids and help rank better in a Evolution of value
creation levers
competitive auction process for PE firms with US$11+ billion AUM?

Tech and digital

rise to prominence

20% The growing

influence of ESG

Advanced analytics
drive engagement
Total and insight

A new era of active

management

80% Often/Always
Lessons for
Rarely/Never the future

Source: 2022 Market Insights Survey Methodology and

acknowledgements

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Evolution of value creation levers
Value creation has always been about driving greater deal multiples or EBITDA, ideally both. While value creation ideas have become an increasingly important part of the bidding
Top six insights
from the survey

Structural shift
in value creation
process, the top levers of value creation have changed little. Both retrospectively4 and prospectively5, the research shows the two primary levers for creating value are (1) buy and
build and (2) people and talent investment. Notably, technology investment and digital transformation are rapidly gaining ground. The survey found that these two levers are expected
to double in importance over the next three years.
The value of
value creation

Most common value creation levers to date Most common value creation levers in the future
Buy and build and talent investment are the top two to date value creation levers over Tech investment and digital transformation doubles in importance over next Evolution of value
the past three years. three years. creation levers

41% 6% 43% 3% Tech and digital

Buy and build Buy and build
rise to prominence
People and talent investment 15% 20% People and talent investment 18% 16%

Geographic/international expansion 10% 13% Tech investment/digital transformation 12% 14%

The growing
Operation efficiency 8% 8% Geographic/international expansion 4% 13%
influence of ESG
Salesforce effectiveness 7% 8% Salesforce effectiveness 4% 9%

Tech investment/digital transformation 6% 7% Operational efficency 3% 10%

Advanced analytics
Channel expansion 12% 1% Channel expansion 9% 1% drive engagement
and insight
Pricing 5% 5% Pricing 5% 4%

Strategic cost reduction 7% 1% Strategic cost reduction 3% 4%

A new era of active
Cash/working capital management 4% 1% Data analytics 3% 1% management

Data analytics 2% | 2% ESG 2% | 2%

Procurement improvement 3% Cash/working capital management 2% | 2%

Lessons for
ESG 1% | 1% Supply chain improvements 2% | 2% the future

Disposal 1% Procurement improvement 2%

Rank 1 Rank 1
Other 1% Rank 2 Disposal 0% Rank 2 Methodology and
4
Past three years acknowledgements
5
Next three years Source: 2022 Market Insights Survey

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 For the time being, buy and build is the top value creation lever by a
significant margin and is expected to remain so. Talent management Successful value creation strategies are Top six insights
is also likely to remain a priority focus in the long term, as even in now combining technology and digital from the survey
the most high-tech industries, human capital often plays a critical
role in differentiating a business. Furthermore, in an environment
transformation with data insight. These
where the first 12 months under new ownership are often key to strategies build a scalable platform for Structural shift
an asset delivering on its overall three-year plan, having the right organic growth, and merger and in value creation
team in place from day one (or day one hundred), puts the portfolio
company in a stronger position to achieve its new objectives. acquisition integration; they drive better
experiences for customers; and they can The value of
Will reliance on these traditional levers continue to be value creation
sufficient going forward? The availability of additional sources help reduce duplication, inefficiency, and
of data allows firms to identify many more potential levers. By cost. This potent blend of tech, digital, and
combining industry insight and experienced advisors, firms can
identify the levers with the most potential for each particular
data is having a large and compounding Evolution of value
creation levers
opportunity, enabling them to achieve both EBITDA improvement impact on EBITDA.
and higher multiples. PE firms should therefore stay abreast of the
changing strategies which continue to develop, in particular around Phil Murden, Partner, KPMG in the UK
Tech and digital
technology investment, digital transformation, and ESG factors. rise to prominence

The growing
influence of ESG
Which levers are most important to you?
Advanced analytics
drive engagement
and insight

A new era of active

“Strategic bolt-ons, identifying under “Putting the right people into the right “In our main fund, we predominantly management
nourished/invested businesses from positions… improving the internal drove value through topline growth
previous owners and working closely management operating system of the with buy and build, international
with very experienced industrialists/ business and helping to build financial, expansion, salesforce effectiveness, Lessons for
operators that compliment our strategic planning and operating and pricing, all of them key value the future
management teams…” discipline.” creation levers for us.”

Methodology and
acknowledgements

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Tech and digital rise to prominence
As noted previously, there is a growing focus on tech-driven levers to build conviction in the value creation plan, drive business transformation, and create additional value. Although
Top six insights
from the survey

Structural shift
in value creation
technology investment/digital transformation was only ranked as the sixth most common value creation lever over the past three years, survey respondents expect it to become
a solid top-three lever in the future, a change that was also reflected in many of the comments from respondents.
The value of
Important considerations for technology investments by portfolio companies value creation

Digital transformation and data analytics are the top choices for technology investments.

We are more willing to change out Digital transformation

(customer-facing) technology
28% 49% 22% 1%
Evolution of value
creation levers
management and have brought on some
operating partners to increase digital Data analytics 22% 53% 20% 2% | 2% | 1%

transformation. Tech and digital

rise to prominence
Cyber security 30% 41% 25% 2% | 1% | 1%

Digital transformation (back-

15% 51% 31% 2% | 1%
end) processes The growing
influence of ESG
Customer relationship
14% 32% 48% 2% | 1% | 3%
management (CRM)
We continue to look for new areas where we Manufacturing technology Advanced analytics
can execute value creation strategies at our improvements / IOT
9% 35% 36% 15% 3% | 2% drive engagement
and insight
portfolio companies and are expanding our
Supply chain 7% 28% 41% 12% 11% 1%
lens to tech-enabled business processes.
A new era of active
Enterprise resource planning management
7% 18% 58% 7% 6% 4%
(ERP)

Other 20% 20% 60%

Lessons for
the future

ESG and digital transformation are critical Invest substantially more Invest moderately more Maintain current investment Invest slightly less
value creation levers that have been growing in
Invest substantially less We do not invest in this area and have no plans to Methodology and
importance through time. acknowledgements

Source: 2022 Market Insights Survey

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 Firms are investing in these areas to refresh their business models and enhance the existing value propositions
of their investments. Looking forward, this increasingly intense focus on digital transformation is strongly
aligned with the use of data analytics. With 77 percent of firms planning to invest more in customer-facing Top six insights
from the survey
digital transformation and 75 percent in data analytics (not to mention 71 percent on cyber security), it is clear
that technology and data are likely to play an increasing role in the investment process in future. Those firms
Technology is the golden thread that choose another path risk getting left behind.
that runs through the lifecycle of Structural shift
To this end, PE firms are taking a longer-term view towards the technology investments they make in their in value creation
an investment. portfolio companies and their anticipated ROI. In fact, 70 percent of firms have a long- or medium-term view of
their technology investments in their portfolio companies, with that figure rising towards 90 percent for higher
Luke Anderson, Partner, KPMG in the UK
AUM firms. The value of
value creation

Steps in evaluating and upgrading technology investments

Most firms take a longer-term and more strategic approach when evaluating the upgrade of technologies in
Evolution of value
their portfolio companies and how to execute them most effectively. creation levers

Holistic review – engage in a front Tech and digital

to back review of the company, and rise to prominence
3% invest in the technology upgrades
which will have a long-term impact
10%
The growing
Medium view – invest in technology influence of ESG
upgrades which have a clear case for
ROI prior to investment exit
38%
16% Near-term horizon – invest in those
Advanced analytics
drive engagement
technology changes which will and insight
increase revenues/reduce costs in the
near term

Low hanging fruit approach – only A new era of active

make those changes/upgrades which management
will have an immediate ROI/impact on
valuation
32%
Other Lessons for
the future

Methodology and
acknowledgements
Source: 2022 Market Insights Survey

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 When considering risk mitigation and value preservation, PE firms overwhelmingly anticipate spending more heavily on
cyber security, with nearly 75 percent looking to increase their cyber security investment. With reports showing ever
increasing cyber attacks, particularly on businesses between deal announcement and deal close, firms should consider Top six insights
A major and public cyber- or this issue as part of their deal modelling. from the survey

data-related incident could Similarly, it is no surprise to see investment in operational resilience is also a priority for almost half of those
be the fastest route to value surveyed, particularly given the supply chain disruption and uncertainty of recent years. Structural shift
destruction for any business. It in value creation

is critical that both a business Approach to risk mitigation and value preservation
and its investors understand For risk mitigation and value preservation, investments in cyber security and operational resiliency top the rankings. The value of
value creation
its exposure to threats and
proportionately mitigates them.
Equally important is establishing Cyber security 26% 48% 19% 3% | 1% | 2% Evolution of value
creation levers
resilience and having effective
incident response and recovery Operational resilience 45% 44% 4% | 4% | 4%

processes. Cyber should be Enterprise risk

Tech and digital
rise to prominence
9% 29% 54% 5% 1% | 1%
seen as the foundation for value management (ERM)

creation, not just an essential GDPR and data

6% 26% 55% 8% 2% | 2%
management
factor in value preservation. This The growing
influence of ESG
Reputation management/crisis
is what investors are seeking to communication planning
5% 24% 58% 7% 6% 1%

understand. Advanced analytics

Know your client 18% 62% 6% 9% 4% | 1% drive engagement
Martin Tyley, Partner, Head of Cyber Security and insight
KPMG in the UK
Internal audit 12% 71% 10% 5% 1%

A new era of active

Forensic management
5% 6% 64% 12% 12% 1%

Lessons for
the future
5 - Invest substantially more 4 - Invest moderately more 3 - Maintain current investment

2 - Invest slightly less 1 - Invest substantially less 0 - We do not invest in this area and have no plans to
Methodology and
acknowledgements
Source: 2022 Market Insights Survey

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Value creation in action
KPMG firms have recently supported PE-backed clients to deliver value from instilling levers to support their strategic business goals.

Top six insights

from the survey

Case study: Empowering procurement Case study: Creating value post-completion in a tech-enabled
B2B business Structural shift
in value creation
After being acquired by a blue-chip PE firm in London, the client – a tech-enabled B2B
provider of data, analytics, and research services to global financial institutions worldwide
– engaged the TMT value creation practice to develop an ambitious action plan to drive
double-digits revenue growth. The KPMG in the UK team spent 14 weeks working side The value of
value creation
by side with the management team and the operating partner of the fund to refresh the
customer strategy, build a leading digital product roadmap, and identify bolt-on merger
and acquisition and joint venture opportunities to help enhance customer churn, increase
pricing power, enter new market segments and expand its portfolio of digital tools Evolution of value
and capabilities. creation levers

The team included business and commercial strategists, customer experience

professionals, and digital product developers with a deep operating track record in the
B2B data sector. The team had a clear set of hypotheses and priorities from the start Tech and digital
Market research and media company Kantar, in which PE firm Bain Capital has a of the engagement, which enabled KPMG professionals to provide insights on industry rise to prominence
majority shareholding, wanted to digitally transform to enable better processes, direction, growth opportunities, and potential pitfalls in depth and at a rapid pace.
supplier and risk management, data collection and analysis, and spend control. The menu of tools and methodologies applied was extensive, and included commercial
KPIs deep dives by customer segment, product benchmarking, voice of the customer,
In an initial scoping stage, KPMG professionals helped Kantar develop a robust The growing
sentiment analysis, and industry macro-trends analysis in the fields of active investing, influence of ESG
business case for change, and assisted with sourcing the right cloud-based ESG, and high-frequency data.
procurement technology platform.
To counter the operational constraints of the lockdown, the KPMG Ignition Centre was
Next, the team actioned ‘phase one’: implementing the chosen technology deployed in London’s Canary Wharf to run six online workshops with executives joining Advanced analytics
and using the Powered Procurement frameworks to methodically ‘unlock’ best drive engagement
in from London, Hong Kong (SAR), China, Sao Paolo, Connecticut, and Singapore. Using and insight
practice source-to-contract processes and supplier risk analysis tools. miro-whiteboarding and other brainstorming techniques, the combined project team
came up with a menu of new product concepts that were subsequently validated and
Key to successfully delivering phase one was an aligned change management
prioritized through customer panels and online surveys.
strategy, to help ensure the Kantar team was engaged on the journey, trained A new era of active
in the new system, and ready to make the most of the new capabilities from These priorities were then detailed out into multiple product development initiatives
management
day one. answering the ‘what’ and ‘how’ questions (e.g. how to re-platform the product, what
content and features to add, what partnerships to put in place), as well as outlining the
Kantar is now equipped with a source-to-contract system that is easy to use,
financial ROI implications and operational execution requirements (skills, head counts, Lessons for
enables greater procurement control, agility, and risk mitigation. The company
tools, processes, etc). the future
is now looking to amplify the long list of expected benefits across the 100
countries in its global network. Following this, the team can implement new The company and its shareholders continue to consult KPMG in the UK around elements
purchase-to-receipt processes, rounding out a full digital transformation and of its implementation plan.
delivering Kantar a procurement function fit for the future. Methodology and
acknowledgements

© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. Delivering on the promise of value creation 12
The growing influence of ESG
With climate change and environmental and social disruption Evaluation of ESG factors in the deal lifecycle
Top six insights
from the survey

Structural shift
in value creation
never far from the headlines over the past few years, there
is growing awareness that firms cannot continue to act in Over two-thirds evaluate ESG factors as a part of a due
the ways they have in the past. There is almost universal diligence and investment decision, with larger firms taking
12%
recognition that all market participants, including PE firms, ESG into account earlier in the deal process and more The value of
need to embrace the spirit and the values embodied by fundamentally as part of the post-deal value creation plan. value creation

environmental, social, and governance (ESG) factors,

10% 34%
not only in their investment objectives, but all along the
At the very beginning of deal evaluation
value chain. 7% Total Evolution of value
creation levers
As part of due diligence and investment decision
The ESG agenda covers a broad range of topics of increasing
importance to investors and stakeholders, from individual During the beginning of the investment and
retail investors and institutions, to legislators, regulators, the first 100-days post-completion Tech and digital
and activists. As part of normal operations of the business rise to prominence
37%
For PE, ESG was originally confined to impact investors or We do not consider ESG factors in our
niche-purpose funds with AUMs that allowed (and some investment process
The growing
would argue, required) them to consider these factors in influence of ESG
their investment decisions. The survey found that, today, 63% 60%
over 70 percent of PE firms are evaluating ESG factors in the
early stages of deal evaluation, with larger funds reporting Advanced analytics
even higher rates. 40% drive engagement
and insight
36%
32% 33%
28%
25% A new era of active
management
19%
ESG is a critical value creation lever
14%
that has been growing in importance 13%
11% 11% 11%
Lessons for
through time. 7% the future

Private equity operating team member,

US$11 - US$50 billion AUM Methodology and
Over $100 Bn $11 - $100 Bn $1 - $10 Bn Under $1 Bn acknowledgements
$ AUM
Source: 2022 Market Insights Survey
© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. Delivering on the promise of value creation 13
 Declining an opportunity because of ESG criteria
The vast majority of firms are committed to ESG to the extent of declining an investment opportunity that does not meet
their ESG criteria. Respondents were asked whether they had ever declined an investment opportunity on this basis. Top six insights
from the survey
Overwhelmingly, the answer was ‘yes’.

Structural shift
13% in value creation
24%

54% 46%

39%
87% 100% 76% The value of
61% value creation

Over $100 Bn $11 - $100 Bn $1 - $10 Bn Under $1 Bn

Yes No $ AUM Evolution of value

creation levers

Although ESG may not be cited directly as a top three lever in value creation planning, it has become an important part of the
investment decision-making process. Most firms are looking at ESG factors early in the deal process, and, if that review raises Tech and digital
sufficient concerns, investors are more than willing to walk away. In fact, over 90 percent of the largest firms in the survey rise to prominence

have declined an investment due to concerns over its ESG performance. Overall in the UK, almost 75 percent of PE firms have
stepped away from a deal, due to ESG factors, while almost half of PE firms in the US have taken the same action.
The growing
influence of ESG
When looking at the geographic split of where firms have declined three quarters of UK firms have done so, and just over half
of US firms have done so.
Advanced analytics
drive engagement
and insight

27%

A new era of active

47% 53% management

73%

Lessons for
the future
United Kingdom United States

Methodology and
acknowledgements
Source: 2022 Market Insights Survey

© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. Delivering on the promise of value creation 14
Embedding ESG in the value creation plan As these figures show, PE firms of all sizes take ESG reviews seriously, with the bigger firms having the
most mature processes in place.
The expectation is that acknowledging and embedding ESG Top six insights
in a value creation plan will have a positive impact, during the from the survey
lifecycle of an investment and far beyond. Firms are using ESG Review
ESG criteria not just to assess risks and identify opportunities, Respondents were asked how sophisticated their processes were for assessing ESG factors in
but to manage their portfolio and ultimately aim to deliver investment decision making. Structural shift
improved and more sustainable returns at exit. in value creation

While it is expected for ESG to be an area of increased Over $100 billion: $1 - $100 billion:
importance going forward, it is interesting to note that it is not

75% 50%
The value of
anticipated to be a top five lever of value creation on its own value creation
over the next three years.

Evolution of value
very sophisticated very sophisticated creation levers

You can see a clear shift from $1 - $10 billion: Under $10 billion:
ESG’s prominence being seen as a Tech and digital

32% 11%
rise to prominence

‘nice to have’ or a ‘must have’ to a

fundamental lever of value creation,
The growing
embedded into the value creation influence of ESG

plan from the moment a deal is very sophisticated very sophisticated

being developed and prepared for the Source: 2022 Market Insights Survey
Advanced analytics

investment committee. drive engagement

and insight
The review of ESG does not stop once the investment is made. Portfolio companies report that nearly
60 percent of their investors are very serious about investment that supports ESG practices.
As ESG outcomes start to impact both A new era of active
EBITDA and deal multiples, this will ESG momentum is undoubtedly growing6. Determining how investments may impact the environment, management
positively or negatively, is now embedded in early stage private equity analysis of opportunities. Social
likely only increase its prominence as a issues are at the forefront of how firms interact on the larger world stage. Governance issues matter
valuable tool for investors and portfolio both in investment opportunities, where diversity, equity, and inclusion (DEI) has been shown to lead to Lessons for
better management and therefore better results for investors, and within the PE firms themselves. With the future
companies. the proper mindset, as well as the right tools and analysis, it is believed that ESG will be a continuing
Nathan Beaver, Partner, Head of ESG Consulting, catalyst for change, as well as a source of investment opportunities.
KPMG in the UK Methodology and
6
See, e.g., Global sustainable fund assets hit record $3.9 trillion in Q3, says Morningstar | Reuters. acknowledgements

© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. Delivering on the promise of value creation 15
Advanced analytics drive Top six insights
from the survey

engagement and insight Structural shift

in value creation

The value of
value creation

Data is vital to help investors understand the intrinsic nature of the Percentage of PE funds who believe quantitative analytics influence the price/
business they are investing in, and to create effective value creation
bid on opportunities
strategies. But without appropriate analysis, the amount of data could Evolution of value
creation levers
be overwhelming. The analysis showed that over 80 percent of the time, quantitative analytics had an impact on the
price paid for an asset, rising to 100 percent for the largest transactions.
The importance of analyzing and actioning relevant data, therefore,
cannot be overstated. The research found that PE firms believe Tech and digital
quantitative analysis has influenced bid prices in over 80 percent of rise to prominence
opportunities. For the largest firms, this rises to between 90 and 100
percent of opportunities. Total 83%
The growing
Furthermore, clear and consistent data enables greater accountability and influence of ESG
transparency pre-and post-deal.

Over $100 Bn 100% Advanced analytics

drive engagement
and insight

$11 - $100 Bn 90%

The volume and velocity of data has changed
$ AUM

A new era of active

dramatically over the last three years. Also, management

the models available to slice and analyze, $1 - $10 Bn 74%

along with bandwidth and computing power, Lessons for

allows for near-real-time data usage. the future

Under $1 Bn 82%
Managing Director, private equity firm, US$1 – US$10 billion AUM
Methodology and
acknowledgements
Source: 2022 Market Insights Survey

© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. Delivering on the promise of value creation 16
Advance analytics to calculate expected returns
A common desktop analysis tool is the top choice for calculating expected return from value creation technologies, but other advanced tools and techniques are gaining traction. Top six insights
from the survey

91%

75% Structural shift

in value creation
8%
3% 60% 58%
6%
The value of
7% value creation

Total
20% 20%
76% 13% 13% 13% Evolution of value
10% 10% 10% creation levers
7%
2%

Over $100 Bn $11 - $100 Bn $1 - $10 Bn Under $1 Bn Tech and digital

$ AUM rise to prominence

Source: 2022 Market Insights Survey

Traditional (Excel or More advanced Leading edge Other We don’t use advanced
equivalent) (Alteryx or equivalent) (Python or equivalent) analytics during deal processes
The growing
influence of ESG

A market-leading desktop analysis tool In a world that is growing more technologically sophisticated by the day, it may seem surprising that a common desktop
Advanced analytics
is often the default tool for quantitative analysis tools - first released on the PC in 1987 – is still a primary quantitative tool for data analysis in value creation planning. drive engagement
analysis for bid pricing. However, more and insight
With analytics automation platforms such as Alteryx, or with firms developing their own proprietary tools, advanced analytics
advanced tools and techniques are are expected to drive more decision making, both on the front end during planning, but also in response to dynamic changes
gaining traction, particularly among in the marketplace. In particular, firms are beginning to recognize the advantages of artificial intelligence (AI) and machine A new era of active
larger firms with deeper resources. learning, both as inputs when pricing an investment opportunity, and also after the deal is closed in an effort to help transform management
With advances in AI and machine the business through enhanced decision making, improved operational efficiencies and streamlined product design.
learning, combined with big data and
Managing the ever-growing volumes of data associated with every deal and asset is also driving further adoption of AI, machine
cloud-enabled services, this can forecast learning, and other analytical. Tools are continually being developed to help ingest, decipher, and interpret greater volumes of
Lessons for
the future
significant growth for these advanced data at ever-quicker speeds, helping to drive conviction in analysis and deliver stronger results.
methodologies over the next few years.
These tools are only as good as the people that wield them. Therefore, it is important the same care and diligence used to
develop the tools is also applied to attract and retain the personnel with the skills to use them effectively. Methodology and
acknowledgements

© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. Delivering on the promise of value creation 17
A new era of active management Top six insights
from the survey

Structural shift
PE firms are clearly actively engaged with their What is the approach taken by fund/operating team? in value creation
portfolio companies. Long gone are the days where
value creation and portfolio management largely meant Three-quarters of firms are actively engaged with their portfolio companies.
installing a new chairman and driving management So, what does it mean to be actively engaged? PE firms are looking for strategic alignment between investors and The value of
teams hard at board meetings. shareholders. Investors are also laser focused on talent: aiming to ensure management teams receive the proper support, value creation

The survey found that more than 76 percent of and, when needed, supplementing or changing those teams to deliver on the promises of the original investment thesis.
firms overall say they take an ‘active’ or ‘very active’
Evolution of value
approach with their investments. US firms are more creation levers
hands-on, with 56 percent ‘very active’, while UK firms
take a more balanced approach overall, with responses
split almost equally across ‘very active’, ‘active’ and 2% 1%
Over next three years we Tech and digital
‘balanced’. Results from portfolio companies were
similar, with nearly 62 percent of companies saying expect to see a continued rise to prominence

their investors actively engage post-deal, and only one building of a trusted
reporting no engagement post-investment.
21% advisor community - The growing
influence of ESG
individuals and consulting
43%
organizations - that can be
deployed at pace. Advanced analytics
drive engagement
We are extending our own and insight
Operations Advisor, private equity firm,
team’s capabilities beyond US$11-US$100 billion AUM
the ‘high finance’ skillset, A new era of active
management
and, therefore, get more 33%

involved in active value creation

Very active Hands-off and passive
strategies,working with the Lessons for
the future
management teams we back. Active Other

Partner, UK PE firm Balanced

Source: 2022 Market Insights Survey Methodology and
acknowledgements

© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. Delivering on the promise of value creation 18
 Value creation execution, working with advisors to identify and drive value
When outside advisors are engaged, they tend to be brought in relatively early. Overall, more than 60 percent of PE firms bring in their external advisors before or during due
diligence. This reflects the fact that value creation planning has moved earlier in the deals process, meaning trusted advisors are needed earlier, too.

In terms of the most important skills required by external advisors, US firms show a clear preference for deep sector expertise. While sector expertise is important for UK firms, Top six insights
they also show a slight preference for previous case studies when seeking support. Using such experts can help firms to build confidence in their analysis and in their value creation from the survey
planning. Industry experts and advisors can play a vital role in providing the depth of knowledge to identify the most valuable levers and when they are best engaged.

10% 14% Structural shift

13% 18% 14% in value creation
25% 30% 10% 34% 11%
14% 14%
25% 18%
38% The value of
15% 25% 2%
50% 7% 29% 5% 34% value creation

6%
5%
Over $100 Bn $11 - $100 Bn $1 - $10 Bn Under $1 Bn Evolution of value
35% creation levers

At the very As soon as a During initial As a part of the Between signing As part of normal
beginning of prospect is due diligence investment decision and completion of operations of
Total deal evaluation solidified the deal the business
Tech and digital
rise to prominence

Important factors when considering an external advisor Source: 2022 Market Insights Survey

US shows preference for sector expertise, whilst UK firms may put higher importance on case studies.
The growing
influence of ESG
Total United States United Kingdom
Deep sector expertise 61% 36% 3% 71% 29% 53% 41% 6%
Advanced analytics
Availability of skilled and trusted resource 46% 48% 6% 50% 48% 2% 43% 49% 8% drive engagement
and insight
Case studies/credentials in dealing with a
40% 40% 17% 3% 28% 48% 23% 1% 50% 34% 12% 4%
particular issue/value creation lever

Working with the PE house / portfolio previously 20% 49% 19% 10% | 1% 32% 46% 12% 8% | 2% 12% 52% 25% 11%
A new era of active
Existing knowledge of the business 25% 34% 28% 12% 1% 32% 32% 20% 15% 1% 20% 35% 35% 10% management

Gaining validation / third Party reliance 41% 44% 8% | 6% | 1% 16% 46% 30% 5% | 3% 38% 54% 2% | 6%

Price competitiveness of advice 37% 46% 6% | 10% | % 28% 48% 8% | 13% | 3% 44% 44% 4% | 8% Lessons for
the future

5 – Most important 4 – Somewhat important 3 – Neutral 2 – Not important 1 – Not important at all
Methodology and
acknowledgements
Source: 2022 Market Insights Survey

© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. Delivering on the promise of value creation 19
Nine lessons for the future
In summary, it is believed that there are nine fundamental principles to follow, in order to deliver on the promise of value creation.
Top six insights
from the survey

Structural shift
in value creation

1. 2. 3.
The value of
value creation
Start early Go beyond the functional Focus on deal speed analytics
and unique data sources
Start as early as possible looking Operational and sector or
at the origination pipeline asset-specific knowledge is a Create a repository of value Evolution of value
creation levers and strive to
Taking too narrow a creation levers
through a value creation or key differentiator and should
business model-shift lens. Put be embedded in the cycle. ensure they are backed up with view in value creation
operating partners, sector sector Empirical and “lived” experience good data sources and analytic at the beginning is Tech and digital
specialists, and value creation combined with analysis and techniques. Use these early in limiting. Make sure you rise to prominence
the process so they form part of
advisors in the deal conversation modelling should give the best look at the full potential
or even “shadow portfolio” answers. your thesis from the get-go.
of all levers. The growing
conversations. influence of ESG
Operating Partner, private equity
firm, over US$100 billion AUM
4. 5. 6. Advanced analytics
drive engagement
and insight
Understand early where Data, data, data Adopt a balanced approach
tech and digital can drive
performance What does the business know The research indicates that A new era of active
now about its customers, investments which consider a management
Is the tech value creation play people, and processes? What balanced cost and growth focus
around the operating model and more could it capture and what achieve three-fold EBITDA growth
IT or is there also a fundamental value could the business derive compared to those that consider Lessons for
the future
shift in the business model and from better information on all a cost only approach.
market opportunity through the three elements?
move to digital?
Methodology and
acknowledgements

© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. Delivering on the promise of value creation 20
7.

ESG is not optional anymore

How KPMG professionals can help
Key stakeholders (customers, suppliers, Top six insights
The PE team is led by professionals in value creation with vast experience of working in and from the survey
shareholders, employees, and regulators) will
with FTSE 50, FTSE 250, and Fortune 500 companies and private equity firms. KPMG firms
likely require both PE investors and portfolio execs bring industry, strategy, and operations professionals together in one coordinated team. KPMG
to demonstrate their companies’ impact on the professionals can also draw on KPMG’s global organization of professionals on everything from Structural shift
planet, on its people, and on economic prosperity. customer experience to supply chain transformation. Value creation specialists can help you in value creation

Underpinning this can be an expectation for understand the risks and upside opportunities of a deal and understand where enterprise value can
transparent principles on governance and operations. be improved. Ahead of a divestment, KPMG firms can help you build a compelling plan for change,
backed by data. KPMG professionals provide you with wide-ranging delivery – from identifying The value of
where potential lies to implementing the programmes to help release it. value creation

8. Evolution of value
creation levers
Conflate the deal and operating partner roles

Consider how you can better combine the deal Tech and digital
partner function (origination, deal execution, etc) with rise to prominence

the operating partner remit around value creation and Val Value creation
u - co
sts
ec
portfolioco management.

re
The growing

ati o n -
Value Leavers influence of ESG

re
ve n o
c ti

n
ue ot e
9. Value pr Advanced analytics
drive engagement
and insight

Invest in the portfolio ecosystem

A new era of active
Take time to look for the cross-portfolio management
commonalities and synergies – where to replicate
success or where to build connections in the
portfolio. Examples include building cross-portfolio Lessons for
the future
CFO networks or seeking to develop portfolio-wide For more information on the delivering on the 2022 Market Insights Survey, and how KPMG
professionals can help PE firms enhance their value creation planning, please reach out to one of
procurement groups to increase leverage on key
our KPMG contacts.
suppliers.
Methodology and
acknowledgements

© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. Delivering on the promise of value creation 21
Methodology and acknowledgements
KPMG in the UK, in collaboration with Coalition Greenwich, interviewed 120 PE firms and portfolio companies in the US and UK during September and October of 2021 to delve into
Top six insights
from the survey

Structural shift
in value creation
issues around value creation and value creation planning through a series of quantitative and qualitative questions. Quotes throughout this report that are not attributed to KPMG
professionals stemmed from those interviews.
The value of
value creation

Participant profile

Evolution of value
AUM Region Type of investment creation levers

Tech and digital

rise to prominence

Over $100 Bn 9% Majority investor 77%

The growing
influence of ESG
Large minority investor 11%
$11 - $100 Bn 11%
44% 56% Advanced analytics
drive engagement
Minority investor 6% and insight

$1 - $10 Bn 33%
A new era of active
Minority investor 4% management

Under $1 Bn 48% Other 2% Lessons for

the future

United States United Kingdom

Methodology and
acknowledgements
Source: 2022 Market Insights Survey

© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. Delivering on the promise of value creation 22
Contact for further information
Glenn Mincey Naveen Sharma Rajesh Sennik
Partner, Global & U.S. Head of Private Equity Partner, UK Head of Private Equity Partner, Value creation lead
KPMG International KPMG in the UK KPMG in the UK
T: +1 212 954-8255 T: +44 (0)7711 462729 T: +44 (0)7919 175050
E: gmincey@kpmg.com E: naveen.sharma@kpmg.co.uk E: rajesh.sennik@kpmg.co.uk

Luke Anderson Phil Murden Emily Watkins

Partner Partner Partner
KPMG in the UK KPMG in the UK KPMG in the UK
T: +44 (0)7958 375174 T: +44 (0)7876 212229 T: +44 (0)7342 051735
E: luke.anderson@kpmg.co.uk E: phil.murden@kpmg.co.uk E: emily.watkins@kpmg.co.uk

Nathan Beaver
Partner
KPMG in the UK
T: +44 (0)7554 114574
E: nathan.beaver@kpmg.co.uk

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