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Hidden Ace
My first real exposure to value creation didn’t come from a boardroom playbook.
It came from a crisis-sale M&A deal that looked insane on paper.
I’d been dropped into a small task force working directly for the CEO to acquire a distressed competitor (I was in a corporate FP&A role at the time). The CFO was tied up, Corp Dev was vacant, and the business we were chasing would be in the hands of an insolvency practitioner within a couple of weeks after years of losing ~$10m a year.
The CEO had already agreed a price of $47m on a handshake, based on a hastily prepared memo.
I thought he’d lost his mind.
But as I started unpacking it, I began to see the genius.
The company had four sites: three were bleeding badly, but one was consistently generating $15m of EBITDA. The losses were masking a profitable core. And the right ‘sum of the parts’ strategy could expose additional value quickly.
The play was simple:
Buy the whole business for $47m
Shut down the loss-making sites (restructuring costs: ~$15m + 6 months of run-rate losses while we executed ~$10m. Total cost: ~$25m)
Sell the real estate from those closures (gain: ~$25m)
Net-net, that left a $15m profit engine on a net investment of ~ $47m.
At our trading multiple at the time (about 12x), that single move added close to $150m of equity value.
What looked like a reckless acquisition turned out to be a masterclass in value creation, and took a ‘wounded animal’ competitor out at the same time.
Welcome to Part III of this four-part series on how to succeed as a Private Equity CFO.
In the first week, we explored the essence of PE and what CFOs can learn from the way investors think.
Last week, we looked inside the firms themselves. How fund economics shape behavior, incentives, and expectations for you as CFO.
This week, we get practical. We’re diving into the specific strategies PE funds use to create value.
Well… I say “PE funds,” but the truth is the heavy lifting happens inside the portfolio company. It’s the executive team, led by you, the CFO, that has to translate that playbook into cash, EBITDA, and multiple expansion.
There’s no single taxonomy for value creation, but when you strip the noise away, seven core strategies show up again and again:
Traveling Light. Capital Efficiency & Financial Engineering
Playing Lego. Inorganic Growth (Buy-and-Build)
Fillet the Fish. Perimeter Shifting / Break-Up Value
Squeezing the Lemon. Efficiency Optimization
Open the Throttle. Growth Enablement / Operational Scaling
Stop the Bleed. Turnaround / Restructuring
Polish the Trophy. Strategic Exit Positioning / Multiple Expansion
If they’re in the PE toolkit, they need to be in your toolkit too.
Let’s walk through each of the seven:
1. Traveling Light. Capital Efficiency & Financial Engineering
I’ve always admired those travelers who pack light. They know exactly what they need. No spare shoes, no just-in-case shirts, just enough for the trip, and nothing more. The bag fits perfectly in the overhead bin. I’ve never been one of them.
But I’ve learned not to build balance sheets like I pack a suitcase. The best CFOs travel light. Every dollar has a purpose, and nothing rides along for free. In private equity, that discipline is baked into the capital structure. It’s not optional.
Goal: Stretch equity capital as far as possible while ensuring the business has just enough to deliver its plan. Maintain liquidity, flexibility, and survival without starving growth.
Where it wins: In loose credit markets, where debt is abundant and relatively cheap. A classic play for leveraged buyouts, turnarounds, and capital-intensive sectors.
Primary tools:
Debt design and refinancing with leverage sized correctly and covenants you can actually live with
Working capital compression through DSO, DIO, DPO discipline, and a rolling 13-week cash forecast
Sale-leasebacks or asset monetization to unlock trapped cash
Disciplined capex gating and ROIC-based capital allocation
Tax optimization and use of Net Operating Losses (NOLs) to protect cash flow
CFO pointers:
Own the capital calendar, including refinancing windows, covenant tests, and dividend capacity.
Build direct relationships with lenders so they come to you first, not the fund
Maintain 18-month rolling forecasts for covenants and top-down liquidity. Use them as early warning tools for pressure points or refinancing windows.
Keep day-to-day cash management watertight through 13-week forecasts, tight credit control, disciplined inventory management, and clear approval gates.
Enforce cash accountability at every level. Business unit leaders should own working capital as much as their P&L.
When 3G Capital bought Burger King in 2010 for around $4 billion, they didn’t win by selling more burgers. It came from capital discipline. The deal was funded with roughly $1.2 billion of equity and the rest in debt, so every dollar had to pull its weight. 3G stripped out layers of cost, shifted the model to franchised and asset-light, and squeezed working capital until the business could fund itself.
Within two years, EBITDA was up nearly 50%, debt was down, and 3G had already paid itself a recap dividend before relisting the company in 2012. By the time Burger King merged into Restaurant Brands International, that original $1.2 billion stake was worth more than $12 billion (roughly a 10× return built on financial engineering).
2. Playing Lego. Inorganic Growth (Buy-and-Build)
Some PE firms build value the way kids build empires on the floor… one block at a time. Start with a sturdy base, then bolt on everything that fits to make something bigger, better, and more valuable.
Goal: Use M&A to drive scale, capability, and multiple expansion faster than organic growth could ever deliver.
Where it wins: In fragmented industries with repeatable economics. Think: dental clinics, software tools, specialty distributors, or regional service networks. Works best when the platform already has systems and a management team capable of absorbing add-ons.
Primary tools:
Bolt-on and tuck-in acquisitions that add scale or geographic reach
Platform roll-ups that consolidate small operators under one brand or system
Carve-outs from corporates where standalone potential is trapped
Acqui-hires and capability buys to add technology, data, or talent
Integration playbooks that standardize finance, pricing, and procurement across the group, delivering a higher combined EBITDA margin
Additional scale and a stronger platform lead to a stronger exit multiple
CFO pointers:
Own the financial model for every deal, including diligence, synergy mapping, and post-close tracking.
Stand up a 100-day ‘integration-to-platform’ plan for systems, chart of accounts, controls, and cash.
Track synergy realization in a repeatable way.
Manage debt and liquidity to ensure there is enough dry powder to fund opportunistic deals.
Build a simple reporting structure so investors can clearly see both the component and combined performance.
Audax Group turned “playing Lego” into an industrial process. Since 1999, it has completed more than 770 add-ons across 125 platforms. Typically acquiring smaller firms at 6× EBITDA. Growing that EBITDA through synergies via integration into their platforms and exiting at 10–12× scale.
3. Fillet the Fish. Perimeter Shifting / Break-Up Value
A whole salmon might sell for around $50 at the wholesale market. But the fillets alone could fetch $65. And even then, the leftovers get sold for stock or pet food. It’s the same principle as the $47 million deal we started with: sometimes the value is trapped inside the whole. You just need a sharp knife, a steady hand (and a strong stomach.)
Goal: Unlock trapped value inside complex or bloated companies by separating what’s profitable from what’s not. Focus resources on the “core fillet” and dispose of everything else - realizing cash to strengthen the balance sheet.
Where it wins: In multi-division businesses, corporate carve-outs, or distressed situations where good assets are buried under loss-making ones. Works especially well when asset values or site-level profits are mispriced or hidden by consolidation.
Primary tools:
Break-up and perimeter redesign to isolate profitable units
Divestiture or closure of underperforming sites, plants, or divisions
Asset sales and real estate monetization to fund restructuring
Simplification of legal entities, reporting, and overhead to match the new perimeter
Opportunistic M&A: buying the “ugly duckling” and turning it into something elegant
CFO pointers:
Build true site- or BU-level P&Ls. Understanding the purest view of contribution margin is crucial.
Watch out for confusion caused by intercompany/intersite trading and recharge mechanisms.
Model closure and sale scenarios early. Know liquidation and break-up values cold.
Watch for working capital impacts of closing business units. The cash flow often responds in unusual ways and is easy to miss.
Lock down a 12–18 month cash plan that funds the carve-out without starving the survivor.
Manage communications carefully. You need protect morale in the core and move fast on non-core.
Track stranded overhead, and remove it fast.
This was also the primary balance sheet strategy in my most recent CFO role. Understanding the true contribution margin of each part of the business (not easy if there if is complex intercompany trading and recharge mechanisms.) Redefining the business into new divisions. Putting the right management in place for each . And then having a specific divest, harvest or invest strategy for each new unit. It unlocked a lot of value.
4. Squeezing the Lemon. Efficiency Optimization
The lemon is the business, and the lemon juice is the EBITDA margin (and associated free cash flow). Baked into almost every PE investment case is an assumption that they will be able to install management that can optimize margins. This is just good old-fashioned operations.
Goal: Drive margin expansion and cash conversion through focus, aligned interest, and operational discipline. Extract hidden efficiency from pricing, procurement, and process, but without cutting into the muscle that fuels growth.
Where it wins: In stable, mature businesses where revenue growth is slow but the cost base and pricing discipline have drifted. Works across consumer, manufacturing, software, and services. Anywhere small percentage gains in margin or cash yield large value uplifts.
Primary tools:
Pricing optimization: granular price-volume analysis, discount governance, and mix management
SG&A rationalization: zero-based budgeting, shared services, and automation
Procurement savings: category-level cost benchmarks and vendor consolidation
Process efficiency: lean operations, workflow automation, and reduced rework
Working capital tightening: faster receivables, leaner inventory, extended payables
CFO pointers:
Use product and customer contribution margin Pareto analysis to identify opportunity.
Track value capture by product, customer, location, etc. via rice/mix/margin waterfalls.
Make cash conversion a board-level KPI. Track DSO, DIO, DPO weekly.
Lead zero-based budgeting reviews that truly start from zero, not last year.
Align management incentives with margin and cash metrics, not just top-line growth.
Use procurement and pricing analytics to find quick wins before touching headcount.
When AB InBev integrated Anheuser-Busch, it squeezed every drop of efficiency from the combined giant, cutting costs by $2.25 billion in the first three years and lifting EBITDA margins from 35% to over 40%. Much of that came from procurement scale, headcount discipline, and global process standardization.
5. Open the Throttle. Growth Enablement / Operational Scaling
Once the machine is running clean, it’s time to accelerate the top line. Find the opportunity, tune the engine for it, and scale what works.
Goal: Drive controlled, sustainable growth by scaling proven products, markets, and systems. Build capacity ahead of demand, removing bottlenecks at just the right speed. Not by spending recklessly, but by investing where the return curve is steepest.
Where it wins: In growth-stage or post-turnaround businesses with a clear product–market fit but limited scale. Works best where operational foundations (pricing, controls, systems) are already solid and capital can now fuel expansion.
Primary tools:
Geographic expansion: entering adjacent markets or regions using existing capability
Product or channel diversification: cross-selling, upselling, or layering new SKUs
Salesforce enablement and GTM investment: productivity, training, and territory design
Infrastructure build-out: ERP, BI, and data systems to scale without chaos
Strategic hiring: CRO, RevOps, or operational talent to handle the next stage of growth
CFO pointers:
Build growth ROI models: understand where the greatest $:$ ROI is.
Track capacity constraints early: supply chain, headcount, systems — and unlock them before they choke growth.
Convert growth forecasts into cash forecasts and engineer working capital for growth: your PE fund will have a low appetite to fund a large cash conversion cycle through growth. Fix it first.
Build the right sales incentives to supercharge growth.
Measure unit economics at scale (not just growth). Make sure margin scales faster than cost.
Example
Remember the Dr Martens case study from the first week’s piece? They took the brand global, opening new stores and embracing online shopping. That grew sales from £200m to £670m in seven years. Even at their entry margins and multiples, that was worth £800m of value creation. And the additional volume would have been a major driver of both margin and multiple expansion too.
6. Stop the Bleed. Turnaround / Restructuring
When you’ve got a patient on the table bleeding out, there’s only one priority: stabilization. A turnaround borrows tools from the other strategies: cost cuts, cash control, restructuring. It just uses them faster and harder. This is about stopping the losses long enough to build a platform for recovery. I wrote extensively about turnarounds last year.
Goal: Stabilize the business, restore liquidity, and buy time. Preserve what’s worth saving, cut what isn’t, and reset the company for recovery.
Where it wins: In distressed or overleveraged companies facing liquidity crises, margin erosion, or structural decline. Most often used by turnaround specialists, operationally intensive funds, or new management parachuted in after a near-miss.
Primary tools:
13-week cash forecasting and daily liquidity management
Aggressive cost-out programs: workforce reduction, footprint rationalization, SG&A freeze
Working capital triage: accelerate receivables, slow payables, liquidate inventory
Creditor management: covenant resets, emergency working capital, amend-and-extend, or debt-for-equity swaps, sentiment management
Rapid simplification of decision rights and approval gates
CFO pointers:
Build a cash control tower: daily cash position, weekly forecast, and immediate visibility on covenant headroom.
Enforce spend triage: essential, deferrable, and kill.
Simplify the business: shut down unprofitable projects, products, and channels.
Make the hard decisions quickly so the business can move through uncertainty faster: reset the base, rebuild momentum, and help people feel like they’re winning again. No death by a thousand cuts.
Manage the business through the 13-week cashflow forecast: optimize for ‘survival buffer’ liquidity. P&L is secondary (for now).
Take direct ownership of lender and investor comms: it’s not the time to develop a treasurer for the future. Stay hands on.
Know when it’s time to move to the next phase: never-ending turnaround is a killer, too.
7. Polish the Trophy. Strategic Exit Positioning / Multiple Expansion
Once the heavy lifting is done, it’s time to make the business shine. Strategic exits are about presentation, timing, and narrative. They are also about luck. It only takes one unexpected macro turn to shut the credit markets (and kill the M&A or IPO market with it).
Goal: Maximize exit valuation through multiple expansion and market perception. Package the business for sale or IPO so buyers see stability, growth, and momentum, and, most importantly, pay for it.
Where it wins: When the core performance story is proven and predictable. Once the business is beyond the complex EBITDA bridge stage. Late-stage in the PE hold period.
Primary tools:
Normalized and defensible Adjusted EBITDA presentation (with some upside to sell against)
Strategic storytelling and investor-ready reporting, with a compelling growth narrative
Portfolio simplification and spin-offs to create pure plays
Secondary recapitalizations to lock in partial gains before exit
Governance and leadership upgrades to de-risk buyer perception
Preparing the business and controls for IPO
CFO pointers:
Build exit-grade reporting: consistent definitions, clean audit trail, and KPI transparency.
Understand the buyer universe: strategics, sponsors, and what they will pay for.
Tighten EBITDA reporting vs budgets and value creation plans.
Stress-test normalized EBITDA: no add-backs the buyer can’t defend.
Anticipate buyer diligence six to twelve months early and fix weak spots before they see them.
Build a skeleton information memorandum 12-18 months before exit. Rehearse the story earlier, spot weaknesses, and give time to fix (and to prove into the reported results).
Start early on the data room.
When Blackstone exited Hilton Worldwide in 2018, it was a masterclass in timing and preparation. They spent years cleaning up the balance sheet, refinancing debt, and normalizing EBITDA, then sold into a record hotel cycle and a frothy equity market. The IPO valued Hilton at $19.7 billion, and by full exit, Blackstone realized over $14 billion in profit, more than 5× their equity.
Not as easy as it used to be.
In the ZIRP era from 2008 to 2022, debt was cheap, cash generation was easy, and frothy credit markets did half the work. Low interest costs boosted free cash flow, and generous debt terms propped up both M&A and exit multiples. Many PE funds made strong returns by leaning only on Strategy 1 and Strategy 7 (financial engineering and smart exits). Lazy PE.
But those days are gone. Today’s higher-rate, lower-liquidity environment has exposed who can really operate. Plenty of funds are now stuck holding assets that looked brilliant in a spreadsheet but don’t work in a tougher macro. Hence the rise of continuation funds, a polite way of saying “we’re not ready to sell, but we need to...”
To win now, funds have to show they can create value through the middle of the playbook (Strategies 2 to 6). The operational ones. The ones that require real execution, strong management teams, and proper governance. The ones that where the value creation happens outside the spreadsheet.
There’s still debate about whether private equity truly outperforms, but the good funds, the ones with a clear thesis, disciplined execution, and the ability to drive operational improvement as well as financial engineering and exit prep, will keep winning. Just like they did before ZIRP made everyone look like a genius (for a while at least.)
Net-net
As a PE CFO, you need to understand the value creation strategy driving your fund’s investment case, then engineer the business and finance function to work back from it.
Next week, we’ll dig into the practical side and how to work well with your PE operating partner.
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Disclaimer: I am not your accountant, tax advisor, lawyer, CFO, director, or friend. Well, maybe I’m your friend, but I am not any of those other things. Everything I publish represents my opinions only, not advice. Running the finances for a company is serious business, and you should take the proper advice you need.
