Outlook 2025: Strategic Pathways To Drive Sustainable Value And Profitable Exits for PE-Backed Companies

As we move into 2025, CEOs of PE-backed portfolio companies face unique challenges that underscore the need for disciplined, forward-looking strategies. Interest rates, though fluctuating, remain higher than five years ago, and ongoing economic volatility and political transitions continue to shape strategic choices. At the same time, sponsor expectations have intensified, with a growing demand for consistent, measurable returns. Against this backdrop, CEOs need to prioritize sustainable value creation, operational optimization, and well-structured exit strategies to navigate these challenges effectively.

Drawing from best practices in operational improvement, the following approaches offer PE-backed companies a blueprint to drive growth, align with sponsor expectations, and create attractive exit opportunities—even in complex market conditions.

1. Leverage Current Capital Conditions for Strategic Investment and Long-Term Value Creation

Today’s high capital costs may seem prohibitive, yet strategic capital allocation in high-ROI areas can significantly bolster long-term value. By carefully timing investments in technology, productivity, and efficiency, CEOs can position their companies to drive sustainable, long-term value creation. Here’s how:

• Selective innovation investments: High-impact technological advancements, such as AI and data analytics, can drive productivity gains, improve margins, and enhance competitiveness. Utilizing data-driven insights enables more refined decision-making and operational streamlining.

• Refinance and reinforce capital structure: Lower interest rates may open opportunities for refinancing debt at favorable terms, facilitating reinvestment and expansion. Strategic restructuring helps optimize capital deployment, balancing cash flow management with growth opportunities.

• Implement a Total Value Optimization (TVO) strategy: Companies use TVO to maximize value creation across the entire supply chain, from planning and procurement to operations and logistics. Through cross-functional collaboration, TVO identifies opportunities to improve efficiency, mitigate risks and unlock measurable results. This approach focuses on driving EBITDA growth, improving cash flow, and enabling sustainable business growth by targeting critical levers such as capital efficiency, operational enhancements, and process optimization.

2. Build Sponsor-Aligned, Flexible Strategies Amid Market Realities

In a market where capital availability can shift swiftly, maintaining alignment with sponsor expectations is crucial. Sponsors expect consistent returns and agile adaptation to economic fluctuations. CEOs can foster sponsor confidence by creating transparent, measurable value creation plans (VCPs) that align with today’s market realities.

• Re-evaluate the investment thesis and update VCP: Begin with a thorough reassessment of the initial value creation plan. Adapting this plan to reflect current market conditions—incorporating strategies for margin expansion, capital efficiency, and growth through organic means or mergers and acquisitions—ensures alignment with sponsor goals and economic conditions.

• Focus on core value levers: Prioritize the four primary value drivers—margin expansion, capital efficiency, growth, and capital structure. Cross-functional workshops with operations, finance, HR, and corporate development teams can pinpoint the highest-impact levers to boost EBITDA and cash flow.

• Operationalize competitive advantage through TVO: Applying Total Value Optimization principles helps companies build resilience by aligning operational goals with financial targets.

Sponsor-aligned strategies, including strategies for growth, enabled one PE firm to increase the revenue of their holding to $500 million in less than five years. The PE firm acquired nine metal machining businesses that serve the aerospace new and replacement engine markets. Strategic sourcing initiatives allowed this purely aerospace company to achieve economies of scale that resulted in a reduction in cost of goods sold of over 18%. The client had a significant growth trend in inventory and as a result helped free up roughly $100 million of inventory to release cash for potential acquisitions.

3. Execute a Well-Timed and Compelling Exit Strategy

For many PE-backed companies, achieving a well-timed exit remains elusive due to market unpredictability. CEOs must develop exit strategies that balance immediate returns with sustainable growth, especially when held assets may lack an immediate exit path. A successful exit strategy involves the following steps:

• Evaluate exit value vs. growth potential: Assessing how much value creation to capture pre-exit is essential for maximizing exit valuation. CEOs should evaluate their team’s ability to execute the value creation plan and consider available resources to maximize growth and exit potential.

• Refine operational costs and eliminate inefficiencies: Address operational inefficiencies that may linger from prior acquisitions or fluctuating inventories. Strategic cost-cutting measures, such as zero-based budgeting and network optimization, can significantly reduce costs and enhance the asset’s value at exit.

Wanting to increase their chances for a profitable exit, the PE owners of a specialty packaging company in Europe looked for potential areas of improvement in overall equipment effectiveness, productivity, and operational excellence. The value creation initiatives identified €29 million in future EBITDA impact that was especially attractive to buyers.

4. Optimize Operations with Specialized Resources

For CEOs facing internal capacity constraints or skill gaps, executing a value creation plan may require specialized resources. Identifying and addressing these needs early in the process can enhance agility and increase the likelihood of operational success.

• Leverage specialized resources for targeted transformation: Where internal teams lack the necessary expertise, external specialists can provide streamlined strategies in procurement, network optimization, and financial restructuring, accelerating implementation and mitigating risk.

• Develop an adaptive operating model: Transitioning from a static to a continuous improvement model allows the company to pivot in response to market changes. This flexibility sustains growth momentum and strengthens cash flow, reducing dependency on external funding.

• Monitor and adjust strategies in real-time: Employing a dynamic approach to performance monitoring enables CEOs to track initiative success, refine strategies as necessary, and maintain alignment with investor expectations. This consistent monitoring supports steady increases in enterprise value and reinforces confidence in the growth trajectory.

Sometimes CEOs face not only capacity constraints and a skills gap but an inability to move beyond traditional responses. A wholesale distribution company, with core business in office and janitorial supplies, realized demand for their services was falling. They had attempted to lower supply chain costs by closing distribution centers, but were unable to make sufficient cuts to balance the loss in revenue. A different approach was needed: first looking carefully at the market from both competitor and customer perspectives, and only then determining the changes needed. New business intelligence tools, including network modeling, data analytics, and spend cubes, gave them visibility, enabling the implementation of world-class processes. The company achieved a $27 million improvement in EBITDA (from negative to positive) and major efficiency gains that allowed a 20% reduction in overstaffing. The value creation initiatives also identified $27 million in future cost improvements.

Building a Strong Foundation for 2025 and Beyond

As 2025 unfolds, CEOs of PE-backed companies have a significant opportunity to strategically navigate economic challenges and leverage operational efficiencies to drive long-term value. Focusing on disciplined capital utilization, sponsor-aligned strategies, and a well-timed exit approach will empower CEOs to deliver strong returns and position their companies as attractive acquisition targets.

Whether dealing with high capital costs or operational challenges, these strategies allow CEOs to effectively adapt to market shifts while preparing their companies for successful, high-value exits. This approach not only provides immediate returns but also sets the stage for sustainable growth, fostering resilience in an evolving landscape.