Exit Strategy Value Creation Opportunities Exist as Economic Pressures Persist

With a robust exit strategy, financial sponsors can create value from day one and enable a strong long-term outlook.
Key Takeaways
-
Macroeconomic pressures are driving financial sponsors to retain assets for extended timelines.
-
Navigating longer holding periods creates new opportunities for value.
-
Due diligence before a deal closes enables financial sponsors to design and implement value-creation strategies to drive growth.
Better Informed
As the global market continues to see inflationary pressures and a mismatch on valuations that bring volatility among dealmakers, financial sponsors remain focused on value creation across their entire portfolio.
While value creation has slowed and significant buyer-seller valuation gaps are emerging, financial sponsors may need to hold onto assets longer to realize value. Amid rapidly evolving macroeconomic pressures, building a robust value-creation strategy must begin on day one.
Capital Availability Propels Dealmaking Opportunities
Whether through operational improvement, talent management, geographic expansion, or technological innovation — retaining assets for longer gives financial sponsors more opportunities to actively contribute to the growth and success of their portfolio companies.
“Value creation starts on day one. Exploring the growing and frequently overlooked levers that can be pulled by the operating partners is the foundation for future success,” says Elissa Etheridge, Global Co-Head of Financial Sponsors.
To enhance outcomes in the current economic environment, financial sponsors should adapt their strategies and deploy more structure and innovation in the way they procure opportunities and manage their portfolios.
Better Advised
Adding Value to the Ownership Period
“There has been a notable shift across the private equity (PE) landscape,” says Jake Tobin, Global Co-Head of Financial Sponsors. “Financial sponsors are increasingly devoting more time and internal resources to the creation of dedicated functions solely focused on portfolio or post-closing value creation.”
By adopting a structured procurement process, portfolio managers can identify synergies and actively pursue opportunities to create value. Despite the longer hold period for financial sponsors in the market, extended timelines enable value to be extracted from maturing businesses in new ways.
The following phased timeline can help extract value during the ownership phase through the first four years.
Better Decisions
First 100 Days: Extracting Value from Day One
From the first day of ownership, undertaking a wider and deeper suite of due diligence not only ensures that value has been identified, but material risks are addressed. The breadth and depth of diligence set the tone for the first 100 days of ownership as part of the portfolio.
“There continues to be a suite of procurement and value workstreams frequently overlooked — most notably a robust portfolio-wide approach to cyber hygiene and that of core insurance procurement, where through leveraging available data, low-hanging value can be extracted,” says Tobin.
Outside of the core commercial and strategic rationale for buying the business, focusing on ways to quickly cut costs, grow earnings before interest, taxes, depreciation and amortization (EBITDA) will set the tone for success.
The pressures on portfolio businesses are rapidly evolving — from digitalization and cyber threats, to environmental, social and governance (ESG) and diversity, equity and inclusion (DE&I) strategies. Without proper management, these risks can threaten the resilience of operations and have a material impact on cash flow:
Cyber Risk Hygiene: As pressure from limited partners and the market more generally looks at the cyber and digital risk landscape, there is an opportunity for financial sponsors to undertake a broader suite of digitally focused due diligence. This does not involve breaking a deal but enhancing the cyber and digital risk hygiene of a business to ensure commercial continuity and balance sheet protection.
Next Steps:
- Develop a proactive approach to reviewing and assessing the cyber posture of portfolio companies with data-driven assessments.
- Develop a technology strategy aligned with business resilience and review future technology investments against that objective.
- Create an M&A target list based on capability, associated IP gaps, and the IP landscape. Unlock deal value through an active approach to credit risk.
- Protect future investment through M&A cyber due diligence assessment.
- Understand financial exposures and assess cyber security controls and capabilities.
- Educate employees on evolving cyber risks.
ESG: Heightened scrutiny and evolving regulatory requirements around social obligations, climate-related disclosures, governance and reporting demand a more diligent approach to ESG. Today, financial sponsors must prioritize integrating ESG risks with business strategy to minimize exposure to risks and optimize investment performance. A continued focus on bolt-on and platform-styled deals may help enhance portfolio companies’ market position and create future growth.
Next Steps
- Assess the increased exposure portfolio companies and their supply chains face from chronic and acute physical risks, such as sea level rises and hurricanes.
- Understand how the increased demand to transition to net-zero impacts portfolio companies — from the pressure of asset owners to consider climate risk in the investment lifecycle to meeting regulatory and industry disclosure requirements for the fund and portfolio companies.
- Assess and mitigate the litigation and reputational climate-related risks related to carbon emissions or the failure to meet climate targets.
- Develop credible decarbonization strategies, including climate data and risk information systems, that demonstrate meaningful progress in the journey toward climate resilience.
- Consider off-take risk, technology risk and supply chain risk when exploring investment opportunities in emerging climate technologies. Embrace IP and counterparty risk solutions to help accelerate and, in some cases, unlock investment in green technologies.
- Explore reputation risk analytics to understand any potential exposures and understand where aspects of social responsibility can be reinforced.
- Build an engaging story and reporting tools to communicate proactively with stakeholders and ensure governance obligations are being fulfilled.
Ownership Phase: From First 100 Days to Year Four
In the ownership phase, portfolio managers can take deeper dives into issues to add value, including insurance, data and people issues.
Insurance Capital: Insurance can be a powerful growth enabler with a critical role to play in facilitating transactions, helping financial sponsors to ring-fence a risk, solve an unknown risk, or transfer a risk off the balance sheet. In focusing on growth, particularly in an environment where preserving or optimizing liquidity is a priority, capitalizing on solutions available in the credit and surety markets can introduce flexibility and efficiency to create value — both in structuring the M&A deal and in the operational phase post-acquisition.
Next Steps
- Deploy transactional insurances, such as Warranties and Indemnities (W&I)/Representations and Warranties (R&W) insurance, contingent risk and litigation and tax insurance to de-risk acquisitions and offer the seller an attractive exit package.
- Use insights across risk, people, pensions, working capital, IP, ESG and digital to better understand critical deal scenarios and opportunities to extract value post-closing.
Prioritization on People: Human resource considerations are critical to both a successful transaction and strategically integrating people into the business. Actively addressing human capital challenges will strengthen the company’s biggest asset — its people — helping to drive value within and across the talent and people profiles of a fund and its portfolio.
Next Steps
- Thoroughly assess a target’s talent, benefit and reward programs, and HR operations to quantify liabilities and risks. This helps negotiate more competitive pricing.
- Optimize the approach to human capital integration strategy by identifying synergies or dis-synergies during early integration planning.
- Rationalize and forecast HR spend and conduct detailed, real-time organizational and talent planning to drive immediate and long-term results.
- Develop holistic total rewards strategies that attract, motivate and retain talent, helping to maximize the return on total rewards investment.
- Consider employees’ financial well-being alongside the financial strategy and consider collective retirement plans, such as Pooled Employer Plans (PEPs) in the U.S. and Master Trusts in the UK and Europe, to create an efficient and cost-effective retirement strategy.
- Uncover communication and change management needs early to support the growth of a resilient and engaged workforce.
Long-term value creation begins with due diligence before the close of a deal. This then enables financial sponsors to design an effective value-creation strategy to implement from day one. In addressing key considerations at each stage of the ownership period, portfolio managers will be well-positioned to achieve a competitive advantage and deliver growth in the short- and long-term.
Find out more: M&A Transaction Solutions
General Disclaimer
This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.
Terms of Use
The contents herein may not be reproduced, reused, reprinted or redistributed without the expressed written consent of Aon, unless otherwise authorized by Aon. To use information contained herein, please write to our team.
Aon's Better Being Podcast
Our Better Being podcast series, hosted by Aon Chief Wellbeing Officer Rachel Fellowes, explores wellbeing strategies and resilience. This season we cover human sustainability, kindness in the workplace, how to measure wellbeing, managing grief and more.
Aon Insights Series Asia
Expert Views on Today's Risk Capital and Human Capital Issues
Aon Insights Series Pacific
Expert Views on Today's Risk Capital and Human Capital Issues
Aon Insights Series UK
Expert Views on Today's Risk Capital and Human Capital Issues
Construction and Infrastructure
The construction industry is under pressure from interconnected risks and notable macroeconomic developments. Learn how your organization can benefit from construction insurance and risk management.
Cyber Labs
Stay in the loop on today's most pressing cyber security matters.
Cyber Resilience
Our Cyber Resilience collection gives you access to Aon’s latest insights on the evolving landscape of cyber threats and risk mitigation measures. Reach out to our experts to discuss how to make the right decisions to strengthen your organization’s cyber resilience.
Employee Wellbeing
Our Employee Wellbeing collection gives you access to the latest insights from Aon's human capital team. You can also reach out to the team at any time for assistance with your employee wellbeing needs.
Environmental, Social and Governance Insights
Explore Aon's latest environmental social and governance (ESG) insights.
Q4 2023 Global Insurance Market Insights
Our Global Insurance Market Insights highlight insurance market trends across pricing, capacity, underwriting, limits, deductibles and coverages.
Regional Results
How do the top risks on business leaders’ minds differ by region and how can these risks be mitigated? Explore the regional results to learn more.
Human Capital Analytics
Our Human Capital Analytics collection gives you access to the latest insights from Aon's human capital team. Contact us to learn how Aon’s analytics capabilities helps organizations make better workforce decisions.
Insights for HR
Explore our hand-picked insights for human resources professionals.
Workforce
Our Workforce Collection provides access to the latest insights from Aon’s Human Capital team on topics ranging from health and benefits, retirement and talent practices. You can reach out to our team at any time to learn how we can help address emerging workforce challenges.
Mergers and Acquisitions
Our Mergers and Acquisitions (M&A) collection gives you access to the latest insights from Aon's thought leaders to help dealmakers make better decisions. Explore our latest insights and reach out to the team at any time for assistance with transaction challenges and opportunities.
Navigating Volatility
How do businesses navigate their way through new forms of volatility and make decisions that protect and grow their organizations?
Parametric Insurance
Our Parametric Insurance Collection provides ways your organization can benefit from this simple, straightforward and fast-paying risk transfer solution. Reach out to learn how we can help you make better decisions to manage your catastrophe exposures and near-term volatility.
Pay Transparency and Equity
Our Pay Transparency and Equity collection gives you access to the latest insights from Aon's human capital team on topics ranging from pay equity to diversity, equity and inclusion. Contact us to learn how we can help your organization address these issues.
Property Risk Management
Forecasters are predicting an extremely active 2024 Atlantic hurricane season. Take measures to build resilience to mitigate risk for hurricane-prone properties.
Technology
Our Technology Collection provides access to the latest insights from Aon's thought leaders on navigating the evolving risks and opportunities of technology. Reach out to the team to learn how we can help you use technology to make better decisions for the future.
Top 10 Global Risks
Trade, technology, weather and workforce stability are the central forces in today’s risk landscape.
Trade
Our Trade Collection gives you access to the latest insights from Aon's thought leaders on navigating the evolving risks and opportunities for international business. Reach out to our team to understand how to make better decisions around macro trends and why they matter to businesses.
Weather
With a changing climate, organizations in all sectors will need to protect their people and physical assets, reduce their carbon footprint, and invest in new solutions to thrive. Our Weather Collection provides you with critical insights to be prepared.
Workforce Resilience
Our Workforce Resilience collection gives you access to the latest insights from Aon's Human Capital team. You can reach out to the team at any time for questions about how we can assess gaps and help build a more resilience workforce.
More Like This
-
Article 22 mins
The AI Data Center Boom: Strategies for Sustainable Growth and Risk Management
Rapid growth in data center construction, spurred by AI advancements and cloud demand, creates interconnected risks for developers. However, with effective risk management solutions, navigating this dynamic market while prioritizing sustainability is possible.
-
Article 8 mins
Mitigating Volatility and Maximizing Profits: A Guide to Risk Capital in the Food, Agribusiness and Beverage Industry
In an industry with tight operating margins, FAB organizations face significant challenges in managing spend and protecting their financial health — requiring industry leaders to adopt a sophisticated approach to risk capital optimization.
-
Article 15 mins
5 Top Trends for Risk Capital in 2025
The risk capital landscape is poised for change, driven by emerging trends reshaping market dynamics. With a buyer-friendly market currently prevailing across most lines, opportunities abound for strategic investment and risk management.
-
Article 8 mins
Aon’s Capital Poll: U.S. Insurers See Further Growth Opportunities in 2025
Aon’s Fall 2024 Capital Poll explores U.S. insurers’ attitudes toward their current retentions, growth outlook and capital solutions companies plan to employ to meet their 2025 targets.
-
Article 9 mins
3 Strategies to Help Avoid Workers Compensation Claims Litigation
When a workers compensation claim goes to litigation, expenses rise dramatically — a burden that is often shouldered by the business. To mitigate attorney-related costs, organizations should re-think their approach to engaging injured workers and use artificial intelligence to enhance outcomes.
-
Article 35 mins
5 Human Resources Trends to Watch in 2025
Human resources is increasingly involved in all areas of a company’s strategy. As the workforce changes, HR leaders should identify and leverage these five important and evolving trends.
-
Article 6 mins
The Long-Term Care Conundrum in the United States
Long-term care is expensive, and costs are rising due to shortages. With the population aging at the fastest rate in a century, finding solutions to pay for care is an urgent priority. How can employers support this growing population?
-
Article 6 mins
Improving Benefit Communication for a Multi-Generational U.S. Workforce
With a multi-generational and diverse workforce, it is important for employers to develop benefit communications and engagement strategies to help employees understand their unique benefit options. Here are five useful tips to consider.
-
Article 7 mins
Key Trends in U.S. Benefits for 2025 and Beyond
As healthcare costs continue to rise, employers are trying to balance the need to take care of their workers with the need to keep costs under control. Aon’s 2025 U.S. Health Survey provides insights into the choices employers are making, and their potential effects on costs.
-
Article 9 mins
Pension Reform: Navigating the Future of Retirement
Pension reforms in Europe are reshaping retirement planning, demanding more oversight from employers and new strategies for employees’ financial wellbeing.
-
Article 6 mins
Managing Non-Financial Risks to Build Organizational Resilience in the Financial Institutions Industry
Non-financial risks are often difficult to predict and quantify, yet present a real threat to financial institutions. In this volatile environment, risk management is playing a greater role in creating business resilience and identifying where capital should be deployed.
-
Article 9 mins
Ensuring Operational Stability Post-Spin-Off: A Conversation with Daniel Halter from Sandoz
Daniel Halter, Director Global Insurance at Sandoz, discusses how smart risk and insurance management supported the Sandoz core mission to provide affordable, off-patent medicines to patients who need them most with Ana Serdarevic, Head of Aon’s Transaction Advisory Services for DACH.
-
Article 7 mins
How to Navigate AI-Driven Cyber Risks
Business leaders are aware of AI-driven cyber risks and their implications. But understanding changing risk profiles to make better decisions around the management of new exposures is the key to cyber resilience.
-
Article 8 mins
U.S. Rail Sectors Work to Mitigate Capacity and Pricing Risk Issues
U.S. freight and commuter rail industries are facing excess liability and property issues for different reasons. These railroads are critical to infrastructure and vital to the economy, yet finding effective solutions remains complex.
-
Article 11 mins
D&O Risks and Considerations for Businesses Planning an IPO
As private companies prepare for an IPO, they face increased risks that require directors and key leaders to adopt essential risk management strategies to ensure a smooth transition.
-
Article 10 mins
How Public Entities and Businesses Can Use Parametric for Emergency Funding
As climate change intensifies the frequency and severity of extreme weather events, public entities and businesses need more flexible funding solutions. Parametric stands out as an adaptable resource capable of swiftly responding to potential disasters.
-
Article 17 mins
How Insurance Helps Unlock Capital for Hydrogen Projects Amid Financing Pressures
Funding challenges due to macroeconomic factors have prevented several green and blue hydrogen projects from getting off the ground. Organizations facing hurdles in accessing capital can work with risk and insurance experts to expedite projects and help make the promise of hydrogen a reality.
-
Article 11 mins
Strengthening Human Capital Strategies to Attract Talent in the Food, Agribusiness and Beverage Industry
Learn how strong human capital strategies can help recruit, retain and motivate vital talent in a competitive and evolving job market.
-
Article 7 mins
Trends U.S. Corporate Boards Should Prepare for in 2025
As corporate boards meet to discuss strategy, including any changes to executive compensation, there are key trends to consider for the year ahead.
-
Article 6 mins
Leading the Biofuels Transition: Risk Strategies to Cut Through Complexity
Companies aiming to be a net-zero company may face many challenges during the biofuels transition. Read more on risk strategies to cut through complexity.
-
Article 6 mins
DC Pension Schemes: Improving Investment Returns
With DC schemes growing across Europe, many organizations are realizing the importance of ensuring strong performance from their investments. Here’s how asset owners and managers can optimize DC outcomes through the right investment strategy.
-
Article 9 mins
Developing a Paid Leave Strategy That Supports Workers and Their Families
With no federal paid leave law in the U.S., employers have limited guidance in designing equitable and comprehensive paid leave programs to support their workforce. Looking beyond compliance to focus on strategy and values will help create fair and well-designed policies.
-
Article 8 mins
Unlock the Potential of Alternative Risk Transfer Solutions
Risk managers are increasingly looking to Alternative Risk Transfer Solutions for potential enhancements in managing risk.
-
Article 8 mins
2025 Salary Increase Planning Tips
Amid economic uncertainty, companies are taking a careful approach to hiring and salary planning — one that includes focused hiring strategies, revising salary budgets and implementing measures that respond to the current economic environment.
-
Alert 7 mins
Client Alert: Responding to Heightened Risk in the Middle East
The current operating environment in the Middle East is increasingly complex and multifaceted, characterized by ongoing conflicts in Gaza, Israel, Lebanon and neighboring states, alongside significant changes in the business and insurance environment.
-
Article 8 mins
Florida Hurricanes Not Expected to Adversely Affect Property Market
Hurricanes Helene and Milton insured loss estimates are expected to fall between $34 billion and $54 billion. Healthy, well-capitalized insurance and reinsurance markets are positioned to absorb those losses.
-
Article 17 mins
Q3 2024: Global Insurance Market Overview
Buyer-friendly conditions continued across much of the global insurance market in Q3, painting a largely positive picture as we head into year-end renewals.
-
Article 10 mins
Why It’s Key to Conduct Cyber Due Diligence in Financial Services During Mergers and Acquisitions
A successful M&A strategy relies on due diligence across financial, legal, human capital, technology, cyber security and intellectual property risks. As cyber threats become more complex, robust cyber due diligence in private equity and acquisitions is increasingly necessary.
-
Article 8 mins
The Evolving Threat of Cargo Theft: 5 Key Mitigation Strategies
Cargo theft in the transportation industry is escalating, driven by sophisticated criminal tactics that exploit both physical and digital vulnerabilities. Businesses must adopt proactive risk management strategies to counter these evolving threats.
-
Article 9 mins
Building Resilience in a Buyer-Friendly Cyber and E&O Market
Competition and capacity are dominating the cyber liability market and pricing remains favorable as a result. Taking advantage of the current buyer’s market to build sustained cyber resilience is the key to success.
-
Article 10 mins
How Risk Transfer Solutions Increase Capital Access in Renewable Energy M&A Deals
The growing renewable energy sector is boosting M&A activity. Risk transfer solutions can help unlock capital access in these transactions.
-
Article 7 mins
Managing Human Capital to Drive Innovation in Life Sciences
Digitalization presents both opportunities and challenges in life sciences, driving new organizational approaches to human capital to keep up with evolving talent needs while building a resilient workforce.
-
Article 5 mins
Connected Perspectives: Better Decisions on Digitalization for Financial Institutions
As financial institutions reshape human capital strategies for the digital age, leaders face pressure to balance the risks and opportunities of digitalization.
-
Article 9 mins
The Next Evolution of Wellbeing is About Performance
Employers are concerned that previous wellbeing strategies aren’t moving the needle enough. But when wellbeing is part of an organization’s culture, it has positive effects on costs, engagement and productivity.
-
Article 6 mins
How Human Capital Data Enhances Risk Management for Financial Institutions
Financial institutions can increase their resilience to volatile threats through enhanced risk management frameworks and innovative models powered by people data and technology.
-
Article 10 mins
How Financial Institutions can Prepare for Pay Transparency Legislation
As the deadline for implementing the EU Pay Transparency Directive fast approaches, some financial institutions feel unprepared to comply. These five steps can help guide the way through the upcoming regulatory landscape.
-
Article 9 mins
4 Ways to Foster a Thriving Workforce Amid Rising Health Costs
Thriving organizations rely on thriving employees to succeed. With healthcare costs on the rise, it’s time for employers to challenge the status quo in providing health benefits. Organizations need to consider the human side of these increases and take bold action to achieve better outcomes.
-
Article 9 mins
How Social Inflation is Impacting the Aviation Industry
The aviation industry is watching the rise in nuclear verdicts with concern as social inflation and associated risks continue to squeeze the sector. Organizations should review their risk management processes to limit the dollar value of future losses.
-
Article 12 mins
Navigating AI-Related Risks: A Guide for Directors and Officers
As AI evolves, directors and officers must maneuver through a complex landscape of regulatory and legal risks. Implementing best practices around the use of AI and robust governance-focused risk mitigation can help manage exposures.
-
Article 11 mins
A Middle Market Roadmap for Cyber Resilience
Middle market organizations face unique challenges in the ever-changing cyber environment, requiring holistic insurance solutions and enhanced resilience readiness to manage risks that could impact profitability.
-
Article 17 mins
3 Strategies to Improve Career Outcomes for Older Employees
With life expectancies and retirement ages on the rise, organizations can capitalize on the value that older employees offer and support them by fostering a workplace where both the business and its people thrive.
-
Article 8 mins
Wildfire Risk Fuels New Challenges for U.S. Communities
As climate change compounds wildfire risk, organizations play a critical role in protecting their workforce before and after an event.
-
Article 10 mins
5 Ways to Address Health and Wellbeing in the Transportation Industry
The transportation and logistics industry faces unique challenges which can negatively impact employees' health. A cultural shift to more tailored wellbeing strategies can improve health outcomes and boost company performance.
-
Article 8 mins
Workforce Shortages as a Future Risk
As workforce and skills shortages emerge as a significant future risk, companies seek winning talent and tech solutions.
-