The Subtle Erosion of Value in Private Equity, According to Lee McCabe

In a recent LinkedIn post, Lee McCabe delves into a common yet often overlooked pitfall in the private equity world: the silent decay of value not from overtly bad deals, but from the poor execution of seemingly good ones. McCabe, a figure known for his insights into the industry, highlights how the critical phase after a deal closes is frequently where potential is squandered.

McCabe argues that the fundamental issue lies not with the initial investment thesis or the entry multiple, but with the transition of responsibility post-acquisition. He writes:

“The deal team rotates to the next opportunity. Attention shifts. Execution becomes someone else’s problem.”

This shift, according to McCabe, is where ambiguity begins to take root. He poses a series of critical questions that often go unanswered in the aftermath of a deal closure:

“Who actually owns growth? Which numbers matter week to week? What’s signal versus noise? What’s broken versus just cyclical?”

McCabe points out that the problem is insidious because it rarely leads to immediate, dramatic failures. Instead, value erodes gradually through a series of detrimental operational factors.

The Perils of Post-Deal Ambiguity

Lee McCabe elaborates on how this lack of clear ownership and focus post-acquisition leads to a slow bleed of value. He identifies several key mechanisms through which this occurs:

• Delayed decision-making
• Partial or inconsistent implementation of strategies
• Conflicting performance metrics and dashboards
• Meetings that defer crucial actions to an indefinite future

As McCabe notes, the issue is compounded by the fact that performance doesn’t immediately plummet. This lack of a visible crisis allows the underlying problems to become embedded, diminishing the firm’s options for corrective action.

“By the time performance visibly stalls, the damage is already embedded. Optionality is gone. Fixes feel reactive instead of deliberate.”

This subtle erosion, McCabe contends, is the primary reason many private equity portfolios underperform. It’s not about a single, catastrophic deal failure, but rather a pervasive inability to effectively run the acquired businesses to their full potential.

Execution: The Real Value Driver

McCabe emphasizes that the success of private equity hinges less on the initial deal sourcing and more on the sustained, focused execution that follows. The model might be sound, and the entry multiple justifiable, but without dedicated ownership and clear accountability for operational improvements, even promising acquisitions can fall short.

In his view, the industry often underestimates the complexity and importance of the post-deal operational phase. The tendency for deal teams to move on, coupled with a diffusion of responsibility, creates a fertile ground for value leakage. McCabe’s analysis serves as a critical reminder for private equity professionals to prioritize execution and ensure sustained focus on the assets they acquire, rather than solely concentrating on the next transaction.