Scott Jones Quoted in Pitchbook Article
Managing Director Scott Jones is featured in a Pitchbook article “PE Firms Need to Double Down on Adding Value”
Recent headlines suggest a resurgence in private equity (PE) activity reminiscent of easier financial times, driven by refinancing and dividend recaps. However, while leveraged debt markets have provided some relief, there's no guarantee of significantly reduced financing costs in the near future. To thrive in the current landscape, PE firms must maintain a long-term focus, avoiding shortcuts and prioritizing value creation through operational improvements. Although achieving substantial returns may become more challenging in the coming years, it remains feasible for firms committed to strategic investments.
So, how can PE firms squeeze more operational value out of assets? Zero-based budgeting — an approach in which a new budget is set every accounting period and every dollar must be justified, rather than using previous figures as a starting point — is making a comeback, suggests Scott Jones of Alvarez & Marsal’s Private Equity Performance Improvement practice, alongside more disciplined capital allocation. This isn’t merely as a cost-cutting end in itself. Rather, it’s a tool to help companies find capital they can re-direct to areas where they can still generate meaningful growth in the current climate.
Mr. Jones says that although some of these cost savings will be used to boost EBITDA margins, much of the freed-up capital “will be reinvested to drive growth in some of the core markets or faster-growing parts of the business.” He adds: “it’s about allowing portfolio companies to continue or double down on investments in their highest priorities segments, (while reducing) investment in some of the speculative initiatives that were greenlit during the hyper-growth period from mid-2020 to early 2022.”
