How private equity companies successfully manage their portfolio companies

Ebner Stolz Management Consultants, Simply Finance | 5 min. read

When investors make an acquisition, both investors and companies face significant challenges. This is precisely the time when a transparent presentation of finances is important for a successful corporate management.

In this article, we will share the key success factors for achieving maximum financial transparency with you.

What is private equity?

Private equity means that private equity companies (short: PE companies) enter into an equity investment in other companies.

For these companies, this results in several advantages, such as:

  • a better access to capital, as well as
  • investor support to increase the value of the companies.

The latter is achieved, for example, through specialist know-how, access to networks, or integration of further portfolio companies in larger corporate groups, etc.

A distinction can be made between different forms of private equity, depending on the stage of life of the companies. This includes, for example:

  • The venture capital for startups
  • Growth capital for expanding companies
  • Buy-out financing

The goal of the acquisition is to achieve an increase in value (or value creation) in the portfolio companies within the holding period in order to benefit from a profit on the subsequent sale. The challenges that arise for investors and entrepreneurs in the process can be easily mastered with the help of software.

How can transparent finances be created?

With the help of LucaNet's FPM software and Ebner Stolz's (EBS) expertise in private equity, a large number of successful projects have already been realized. In particular, the following success factors were identified for the successful "onboarding" of the new portfolio companies into the reporting process.

1. Connection to financial acconting

A first and important decision in the context of the introduction of LucaNet software is to weigh up between importing data via totals and balances lists from Excel or setting up a direct interface to the ERP upstream systems.

infrastructure private equity
Graphic 1: Connection to financial accounting

In particular, the high level of automation and the provision of additional information argue in favor of a direct connection to the source system. In addition to the drill-down function at source document level, there is also the advantage that consolidation-relevant partner information can be transferred from debtors and creditors, as well as other information such as cost centers or transaction types for schedules. Only a few days after the introduction of the software, the first financial data can be displayed smoothly.

2. Design and structure of the chart of accounts

It is advisable to define a uniform consolidated balance sheet and profit and loss statement at item level at the beginning of the project. Below that, all local accounts can be transferred and displayed to achieve maximum transparency as quickly as possible. This approach should be further optimized in the course of the project. This includes, for example:

  • The realization of a unified chart of accounts
  • The use of separate intercompany accounts

Depending on the needs of the company, a large number of accounts should be created in the system in the "Other income and expenses" area. A transparent display of issues to separate accounts does not only facilitate the automated display of a consolidated balance sheet, but also enables a highly detailed reporting process.

Graphic 2: The items of the balance sheet (Statement of Income) include the referenced accounts from the subledger "P&L".

3. Display of the group structure

Legal consolidated financial statements must be prepared at least once a year. However, financial investors also require access to at least one other type o pro forma or management consolidated financial statements. These rarely differ in the accounting standard, but mostly in the configuration of the group companies included and the dates of inclusion.

It is often the case that a company only legally joins the group within the fiscal year, but for the PE company the consideration of the full year has priority. At the same time, the maintenance of currency tables as well as historical exchange rates should not be neglected.

4. Creation of various scenarios within the context of corporate planning

In addition to the display of different group structures, the display of different planning scenarios is also one of the key success factors. "What if?" This question constantly occupies PE companies. In particular, to make decisions regarding new acquisitions or possible exit scenarios. Therefore, a planning concept for integrated financial planning should not be missing during the implementation of the software. This can be used as a basis for various planning scenarios in which there are no limits to the number of measures.

5. Display of finance and non-finance KPIs

What are the relevant indicators that can describe the company's situation at a glance and provide information on the company's value?

This is another important question. Standardization is important here, especially from the PE company's point of view. This is because the various portfolio companies should also be comparable with each other. Above all, this includes a defined reporting view of the balance sheet, profit and loss statement, and cash flow. Furthermore, the polling of incoming orders and order backlogs is a decisive factor. However, non-finance KPIs also play an important role. For example, ESG key figures that provide conclusions on sustainability or employee figures that can be used to display staff turnover and productivity.

Graphic 3: Use of different account types to display the indicators

6. Defining the reporting structure

Investors usually have clear requirements for the standard reporting of portfolio companies. The main focus here is on establishing a standardized procedure that enables a high level of automation and efficiency for both sides. In LucaNet, the general ledger and subledger are usually used to display the legal balance sheet and profit and loss statement according to German GAAP or IFRS and to derive a reporting structure from them.

As part of the cooperation with a Swiss private equity company, for example, a reporting system consisting of balance sheet, P&L, cash flow, and KPIs was developed:

  • On the one hand, with a high degree of automation and references displayed in LucaNet
  • On the other hand, able to be exported to Excel completely and quickly using the LucaNet formula to send to shareholders

This does not only include the actual figures, but also a comparison of the corporate planning. "Year-to-date" and "last-twelve-month" views are also integrated in the reporting process. Various checks and warning indicators are used in the reporting process to enable plausibility checks of the company figures.

How to move from state-of-the-art reporting to an increase in value

If the success factors listed above are conceptually and operationally integrated into the onboarding of new portfolio companies, the conditions are set for increasing the value of the company. However, this does not work completely independently. Both the PE companies and the portfolio companies must act in concert.

More about the top supplier in the field of FPM

The example of private equity companies represents only a small section of the application possibilities offered by the LucaNet software. You want to learn more about LucaNet's FPM solution and how you can use the software for your specific use case within your company - be it in the area of consolidated financial statements, planning, analysis, or reporting.

Get to know the LucaNet solution for group controlling:


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