The usual portfolio value generation imperatives such as
Increase equity portion/ decrease leverage in anticipation of exit
Improve operations to increase financial metrics (e.g., EBITDA)
Expand multiple to have a very successful, valuable exit
reflect a perspective rooted in the value of the firm as reflective mostly of its power to create free cash flows. However, there are other avenues which may even consume cash but seek increased wealth (growth of capital) insofar as this is a more propitious view of value creation
Some of them are (in the spirit of Marty Whitman):
Define and implement rigorously the portfolio company’s operating model and ensure it aligns with the principals’ investment thesis
Seek value internally by both cost and top line improvements
Seek value externally through mergers, acquisitions, spin-offs, carve-outs, spin-outs, buy-and-builds, etc.
This second set of approaches does not necessarily contemplate the traditional complete exit as the principal source of value unless so desired. In an way, it takes control of timing to best suit the portfolio strategy
Examine the stated strategy for the PE portfolio and the executed strategy to date to assess alignment and glean real/realized sources of value and their further applicability
Assess operational model of portfolio components to identify individual portfolio company value sources and potential combinations thereof
Review portfolio company project set (new products, new marketing, new markets, other investments) for feasibility and value potential and feed into executive business plan(s); also examine possible cross-pollination to other portfolio members
Assess, plan, lead operational execution of corporate transactions for portfolio companies performing integrations and divestitures as well as the operational aspects of spin-offs, spin-outs, carve-outs, etc.