The investment logic in private equity is changing. With higher financing costs, more selective buyers and more demanding exits, value creation increasingly has to come from the business itself.
The market is forcing a different value creation logic
The German private equity market has become more selective in 2026. EY-Parthenon reported a 19% year-on-year decline in the number of German PE transactions in the first quarter, while exit activity across Europe improved. This does not mean the market has stopped. It means the quality threshold for investment cases has risen.
The period in which a meaningful share of value creation could be generated through cheap leverage and expanding valuation multiples is, for now, over. Financial engineering remains part of transactions, but it cannot replace operational development. Investors therefore need portfolio companies to improve earnings, cash flow and strategic quality from within.
Operational value creation starts with transparency
Value creation rarely fails because there are too few possible initiatives. It more often fails because too many initiatives compete for attention or because their economic impact has not been quantified. The starting point is a robust view of where value is actually created – and where it is lost.
- Pricing and margins: Which products, customers and contracts generate attractive economics, and where is pricing power available?
- Working capital and cash: How much liquidity is tied up in receivables, inventory, projects or inefficient payment processes?
- Commercial excellence: Which customer groups, regions and channels create profitable growth rather than revenue alone?
- Management information: Can management and investors identify deviations early and make decisions on a consistent data base?
- Organisation: Is the leadership model scalable, or does operational performance depend on a small number of individuals?
From the 100-day plan to an executable architecture
A 100-day plan creates value only if it forces prioritisation. For every material initiative, economic impact, ownership, timing and dependencies need to be clear. The number of initiatives is less important than the speed with which the most relevant levers translate into measurable results.
In demanding portfolio situations, it is useful to distinguish between stabilisation, short-term earnings improvement and strategic initiatives. This prevents long-term projects from consuming management capacity while immediate operational or liquidity issues remain unresolved.
Buy-and-build creates value only when integration works
Buy-and-build remains an important lever, but adding revenue through acquisitions is not enough. Synergies must be realistic, accountabilities clear and systems, reporting, sales structures and leadership integrated. Otherwise the company may become larger without becoming more valuable.
Integration capability should therefore be assessed before signing an acquisition. A platform that lacks management bandwidth, data transparency or process discipline is unlikely to create the expected value from follow-on acquisitions.
Exit readiness starts earlier
In a more selective exit market, preparation quality matters more. Buyers will scrutinise earnings quality, cash conversion, customer concentration, management dependence and the sustainability of the growth story. Exit readiness should therefore not begin six months before a sale.
During the holding period, the equity story should increasingly be backed by operational evidence. A good company does not automatically produce a good transaction. A well-prepared process, however, helps ensure that achieved value creation becomes visible and negotiable.
Conclusion
Private equity remains a capital business, but value creation is becoming a more entrepreneurial task again. The less an investment case can rely on financing effects and multiple expansion, the more important operational excellence, cash discipline, management information and early exit preparation become.
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Market context: EY-Parthenon, State of Private Equity, 15 June 2026.
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