In this episode of PE Value Drivers, I had a great conversation with David Acharya, Managing Partner at Acharya Capital Partners, a New York City based private equity firm that buys, builds, and enhances lower-middle-market companies. David is a senior private equity investor with significant experience in investment banking, leveraged finance, and capital markets. His specialties include industry experience in technology, media and telecom (TMT), business services, marketing services, and light manufacturing.

As an experienced investor and value creator, David had some great advice to share. Highlights include:

On the value creation playbook:

• There is no single value creation playbook. Each portfolio company has a very different approach.
• Value creation in about four things - expanding revenue, growing EBITDA, expanding the organization, and professionalizing services.
• Building a strong relationship with portco CEO helps them realize that although there will be ups and downs, you're there to solve problems and create value together.
• Prior to close, he spends a lot of time working with the management team to develop the post-close value proposition and value creation plan and in developing a relationship that can last 5-7 years.
• One constant is that management teams don't have extensive M&A experience. They often need somebody to come in to handle the M&A aspect of the value creation plan.

On the three things to emphasize to Bring the Management Team Along to Fulfill the Vision of Growth

• First is communication. Prior to close, walk through many examples of value creation and how you brought in new staff members and rearranged the furniture within a portco to bring value.
• The second is alignment. If they don't participate in the value created, you're not going to get the best out of the management team. They typically require management team members to invest hard dollars and provide them a restrictive management stock equity program.
• And third, is not to burden them with a highly levered capital structure. He seeks very moderate levels of debt going in because things can go sideways quickly. And with high leverage, you then have to take away some of the things that will grow the company.

On how to gain additional leverage

• Third-party resources are extremely important in the value creation plan because many portcps don't have those resources in house.
• When third-party resources are needed, they’re oten needed quickly. Building strong relatiosbips with the right resource providers help ensure they will be ready to jump in quickly.

Words of Advice For Other Value Creators

Value creation is never a cookie cutter playbook. When you look at value creation, build the relationship with the management team, because they'll be responsible for executing it. Each value creation plan depends on the portfolio company, the level of management team members, and the current cycle of the economy. If you go into an investment with that level of flexibility, your chances of success will be higher.