Execution: The Untapped Alpha in Private Equity.
Why Investors Are Demanding Execution Audits Before and After the Deal
Private equity firms have long mastered the art of financial engineering. Commercial due diligence is rigorous. Market sizing, synergy modeling, and cost benchmarking are second nature. But there’s one critical blind spot that continues to erode value across portfolios: execution readiness.
The fact is, strategy doesn’t fail on paper. It fails in the handoff to execution. That failure costs companies up to 10% of revenue and drags EBITDA timelines by quarters—sometimes years.
In a capital environment that punishes inefficiency and delays, PE firms are now realizing: execution maturity is a leading indicator of value creation.
The Shift: From Post-Mortems to Pre-Emption
Over 70% of strategies don’t achieve their intended results. Not because they’re wrong, but because the organization can’t deliver consistently across business units, functions, and cycles. That gap between intent and impact is what we call the Execution Fog.
Historically, PE ops teams waited to diagnose this fog until post-close. But with compressed hold periods, increased competition, and higher interest rates, the margin for error is gone.
The smartest investors are moving execution audits upstream — as part of diligence. Others are embedding them into their 100-day plans, making them as routine as legal or compliance reviews.
What Is an Execution Audit?
An execution audit is not an operational checklist or a functional efficiency review. It’s an investor-grade diagnostic of maturity, agility, and alignment across the organization. It maps where value is being created, where it’s leaking, and why.
Key elements include:
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Joy Score: A proprietary maturity score across strategy, ops, finance, tech, customer, and people.
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Fog Map: Visual overlay of execution risk areas across the enterprise, product/service, and customer layers.
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SELM & SILM Ratings: Measures of execution agility and initiative throughput.
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KPI Causality Graphs: Linking activity to outcomes to reveal true drivers of EBITDA.
Why This Matters for PE
PE value creation depends on clarity and speed. Execution audits unlock both:
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Pre-Close: Spot hidden risks, misaligned incentives, or execution bottlenecks that could delay value realization.
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Post-Close: Create a clear, data-backed maturity roadmap for 100-day planning.
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Ongoing: Track execution performance alongside financials to intervene early.
Firms that implement execution audits see:
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Up to 1.5x improvement in EV multiples for mature operators
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10-20% faster EBITDA realization in portfolio companies
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Improved renewal rates and NPS when execution aligns across layers
A New Standard for Value Creation
Execution audits are quickly becoming a third pillar of diligence—alongside financial and commercial. And they’re redefining what great looks like in operating discipline.
For investors who want to know not just what a company could be worth, but how quickly and confidently it can get there, the message is clear:
Don’t just buy a strategy. Buy the ability to execute it.
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