The ‘How’ of Value Creation Plans: Lee McCabe Critiques Private Equity Strategy

In a recent LinkedIn post, Lee McCabe delves into the common pitfalls of value creation plans (VCPs) within private equity firms, arguing that while most firms now have them, the execution often falls short. McCabe, writing from the perspective of an industry observer, highlights a pervasive issue: the lack of a concrete operational strategy behind the seemingly standardized VCPs.

McCabe begins by noting the shift away from purely financial engineering as a strategy, stating:

Every private equity firm now has a value creation plan. Which is reassuring, because apparently buying a company for 12x EBITDA and hoping the multiple expands again is no longer considered a strategy. Shame, really. It was such a tidy religion.

This observation sets the stage for McCabe’s central critique: the homogeneity of these plans. He points out that many VCPs are remarkably similar, often featuring predictable initiatives such as pricing strategies, sales effectiveness improvements, digital transformation, procurement savings, working capital optimization, and the ever-present “AI roadmap.” While these elements are not inherently flawed, McCabe argues their inclusion is often superficial.

The Obviousness vs. The Execution Gap

According to Lee McCabe, the core problem lies not in the identification of potential value-creation levers, but in the practicalities of implementing them. He asserts that while identifying these levers is relatively straightforward for experienced operators, the real challenge resides in the execution and the underlying operational framework.

McCabe questions the substance of many VCPs, posing critical questions about their implementation:

Who owns it.
What gets funded.
What data is trusted.
What decisions change weekly.
What the CEO has to stop doing.
What the board will tolerate when the first ninety days look ugly.

In McCabe’s view, the failure of value creation initiatives often stems from this gap between the strategic thesis and the operational reality. He emphasizes that the breakdown occurs not in the initial ideas, but in the ‘operating system’ of the business and the PE firm’s approach to managing change.

The Political Inconvenience of Change

Further elaborating on the root causes of failure, Lee McCabe suggests that the issue is less about a lack of ideas and more about human and organizational resistance to change.

He posits:

Value creation does not fail because firms lack ideas.

It fails because everyone wants the upside of change and nobody wants the political inconvenience of changing anything.

McCabe’s analysis suggests that while private equity professionals are adept at identifying potential improvements, they often underestimate or fail to adequately address the political and cultural hurdles within target companies. The desire for the financial upside of value creation is common, but the willingness to navigate the inevitable internal conflicts and resistance that accompany significant change appears to be far less prevalent. This, according to McCabe, is where most value creation strategies ultimately falter, not in their conception but in their difficult, politically charged implementation.