Value creation over multiple arbitrage

The logic of value creation in private equity is shifting. In a market where rising valuation multiples can no longer be relied upon as a tailwind, returns must once again be earned within the portfolio company itself. Operational value creation is therefore moving from a well-established success factor to an essential prerequisite for attractive capital returns.

This trend is particularly pronounced in the mid-market. According to the FINANCE Midmarket Private Equity Monitor, produced in collaboration with DBAG, efficiency and cost programmes remain the most frequently cited instrument of value creation, whilst buy-and-build remains relevant but is being pursued more selectively. The emphasis is firmly on measures that directly improve earnings quality, process efficiency and cash conversion.

For portfolio companies, this means a shift in priorities. Topics such as working capital management, pricing structures, procurement, productivity and organisational governance are once again becoming strategic levers — not as purely defensive measures, but as a foundation for sustainable growth. In an environment characterised by restrictive credit conditions and differentiated exit markets, operational quality significantly expands a company's room for manoeuvre.

For investors, due diligence is changing accordingly. The question is no longer simply whether a company has market potential, but how robust its value creation agenda genuinely is. Which measures can be implemented within the first 100 days? What capabilities does the management team bring? And where are the realistic levers for margin improvement and cash flow strengthening?

In this respect, private equity is returning in some ways to one of its core principles: creating value not primarily through market sentiment, but through active entrepreneurial engagement. Particularly in the German Mittelstand, where operational excellence and long-standing customer relationships so often make the difference, this form of value creation remains especially compelling.