Importance of Strategic Pricing in PE
Does anyone have some insights on the extent to which PE firms rely on pricing strategies to improve the performance of their portfolio companies?
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I haven’t yet made my transition to PE so others will have some more detail here, and this might vary a bit from fund to fund, but PE firms will definitely put a focus on improving pricing if they feel the current pricing strategy is leaving some room on the table. Given where my seat is, I don’t have a ton of detail on how the strategy is drawn up and implemented, but on a number of the home run deals I’ve seen when selling / looking at sponsor owned assets, the ability to push price has been a key, if not the main, driver. pushing price is obviously huge for margin / cash flow. I’ve seen PE owners put new management in place with the core focus being improving pricing on businesses that previously disregarded price in pursuit of market share, and in the right circumstances this has led to home runs. If a business is being priced / sold on 2% price increases and I think there’s a way to get the annual price increase up to 4% or wherever, take a look at the difference in returns and you will see why anyone would run hard at that. They key piece here is maintaining volumes of course, but that’s where the point on the right circumstances comes into play.
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