The Right Sherpa Can Make All the Difference

Why PE Firms Need to Look at Operators as a Profit Center

Private equity firms increasingly recognize that operating teams are not just cost controllers but
key revenue drivers. Evidence from recent studies shows that operational improvements — when
driven well — account for a large share of value creation through enhanced revenue growth,
margin expansion, and better cash flow.

As far back as a 2009 study by Capital Dynamics found that private equity-backed companies’
EBITDA grew 42% during the holding period, compared to only 12% for comparable public
companies. This “operational alpha” – returns beyond what leverage and multiple expansion
deliver – underscores how operations teams that improve business performance contribute
meaningfully to profitability. (Source: capdyn.com)

More broadly, recent surveys show that 72% of PE firms now see operational improvement as
their top strategy for boosting returns, up from about 48% five years ago. (Source: Staria) In another
survey, 90% of PE firms said they are increasing pressure or involvement in portfolio
companies to achieve operational and strategic value creation. Operational levers are expected to
contribute about 57% of total value creation on average in upcoming years per respondents.
(Source: goetzpartners.com)

Operations teams also generate concrete revenue upside via improving processes. For example,
EY reports that using better financial forecasting, budgeting, and KPI monitoring can enhance
free cash flow by 38% of revenue. (Source: Ernst&Young) Likewise, improved working capital and procurement
practices (often run by operations specialists) have been shown to unlock cash equal to ~1.5% of
revenue through better accounts payable and supplier terms. (Source: Ernst&Young)

Lastly, case studies show operations teams uncover hidden opportunity for revenue growth.
One PE firm bought a manufacturer whose average EBITDA margin was ~12%, but certain
product lines were over 28%. By reallocating resources to these high margin product lines,
optimizing customer segmentation and throughput, they raised the margin to ~21% in about 30
months—without major layoffs. (Source: Global Wealth Insight)

In conclusion, operations teams in PE firms drive revenue growth in multiple ways. With clear
statistics showing that operations contributes well over a third to over half of value creation, the
case is strong: ops teams are essential to revenue generation and return maximization in
private equity.

Tom Doherty – October 7th, 2025

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