Author: Gerald O'Dwyer

When considering acquisitions in the Lower Middle Market (LMM), especially family-run businesses that haven’t yet been professionalized but have brought in private equity (PE) dollars, executives face unique opportunities to unlock value. However, approaching these opportunities requires a methodical and strategic approach to value creation. It also requires a keen understanding of what private equity investors truly value.

In this article, I will outline how executives can frame their approach to thinking about value creation, the criteria for choosing the right strategies, and the balance between leveraging internal talent and engaging external consultants. I’ll also discuss the critical importance of attending private equity conferences to network with PE firms and learn from a funnel of 200 PE firms in your sector.

Expanding Beyond Your Own Knowledge Base

Acquiring a family-run LMM company often requires more than the skills and knowledge an executive has acquired over their career. Value creation is a dynamic and evolving field, and what worked in the past may not be enough to succeed in today’s environment. Engaging with private equity firms at sector-specific conferences is crucial to understand the real-time trends and expectations of investors.

Conferences offer direct exposure to private equity professionals who are actively looking for operational improvements, innovative growth strategies, and scalable processes. These engagements allow executives to get into the mind of a PE investor, particularly what they value in a business—whether it’s a leaner cost structure, operational excellence, or industry-disrupting technologies.

The benefits of attending such events go beyond education; they include:

Learning from 200+ PE Firms

To truly understand what private equity values, executives must build a funnel of at least 200 PE firms in their sector. This funnel gives you insights into:

Criteria for Choosing the Right Value Creation Strategies

Now that you’ve expanded your network and knowledge base, it’s essential to choose the right strategies for value creation. The key criteria for selecting these strategies include:

Core Value Creation Strategies in Manufacturing

1. Lean Manufacturing

Eliminate inefficiencies by applying lean principles like just-in-time (JIT) inventory and continuous improvement (Kaizen). These practices help streamline operations, reduce waste, and improve productivity.

2. Automation and Robotics

Invest in automation technologies to enhance production speed and reduce human error. Smart factories incorporating robotics and AI can lower costs and increase flexibility in production lines.

3. Supply Chain Optimization

Streamline supply chain management using digital tools like IoT, blockchain, and real-time tracking for better demand forecasting and inventory management.

4. Sustainable Manufacturing

Introduce eco-friendly production methods, such as recycling waste or reducing energy consumption, to lower costs, reduce regulatory risks, and attract environmentally conscious customers.

5. Customization

Utilize advanced manufacturing technologies like 3D printing to offer product customization at scale, allowing customers to order tailor-made products without increasing production costs.

6. IoT Integration

Utilize IoT and smart sensors for predictive maintenance and real-time data collection, reducing downtime and improving decision-making capabilities in the manufacturing process.

7. Quality Management

Implement Six Sigma or Total Quality Management (TQM) systems to improve product quality, reduce defects, and ensure customer satisfaction.

8. Agile Manufacturing

Develop flexible production systems capable of quickly adapting to market changes and customer demands. This strategy allows for shorter production cycles and more responsive supply chains.

Accessing Internal Talent vs. Engaging Consultants

Leveraging Internal Talent

Many family-run companies have underutilized internal talent. Tapping into this talent can yield valuable insights:

When to Bring in External Consultants

However, there are situations where engaging external consultants is necessary, especially when you need specialized expertise or an objective perspective. Consultants can bring:

Potential Consulting Firms for Value Creation

Operational Efficiency and Lean Manufacturing

Automation and Robotics

Supply Chain and Logistics

Sustainability and Environmental Consulting

Human Capital and Change Management

Conclusion: The Power of Conferences and Networking

The journey of acquiring and professionalizing family-run LMM companies is a complex and rewarding process. To succeed, you must go beyond your own past experiences, engage with PE firms through conferences, and learn what they value in both short- and long-term strategies. This interaction not only expands your strategic thinking but also opens doors to opportunities you might not have considered.

By attending conferences and building relationships with 200+ PE firms in your sector, you can continuously refine your approach to value creation, align with investor expectations, and position your acquisition for substantial growth. Additionally, knowing when to tap internal talent and when to bring in specialized consultants ensures that you’re always leveraging the best resources to unlock the full potential of your acquisition.