During the ZIRP era, many private equity partners in our network focused entirely on Financial Engineering: ⤵️
1. ZIRP enabled PEs to finance acquisitions with 60–80% debt at sub-4% rates, expanding IRRs via leverage rather than organic growth
2. Cheap M&A expansion – buying at 8-10x EBITDA, adding smaller assets at 4-6x, exits at 10-12x with roll-ups and scale optics
3. Debt-funded dividends for early capital kickback, reducing risks and decreasing return periods
4. EBITDA engineering with add-backs, cost reclassification, adjusted EBITDA synergy segmentations to optimize for multiples
5. Refinancing arbitrage (interests up to 2.4% in 2019 moving gradually to 0% until the 2023 high jump) – timing right lowers WACC and generating incremental cash
6. Trimming the hold period down from 6-8 years earlier to 3-6 years now (5 on average), decreasing return periods and making for a more lucrative investment vehicle. Shorter holds change who has to be in the building. An operating partner private equity model puts someone inside the portfolio company with a P&L line to defend from week 1, which is what keeps a 5-year plan intact after the first missed quarter.
Since ZIRP hasn’t been on the table since 2022, the past couple of years have seen a focused shift toward private equity value creation and governance initiatives, closer to optimizing actual business performance. That shift only holds when the work is written down before anyone starts moving. A value creation plan for private equity names the commercial, GTM and digital workstreams, the owner of each one, and the EBITDA line it is supposed to move.
This is a great period, because financial engineering alone does not deliver value for customers, and many funds executed PMI poorly, with businesses generating poor outcome and degrading over time. Poor PMI shows up in the numbers long before anyone calls it a problem. The portfolio company audit is how you find it early, working through commercial performance, systems and org design inside the first 90 days rather than at the year 3 board review. With value creation, PEs focus on increasing efficiency and providing additional opportunities within businesses to grow in value, brand, trust, and retention. Efficiency gains in a mid-market portfolio company usually stall on the technology side, where nobody senior owns the roadmap or the vendor spend. Bringing in a fractional CTO for a portfolio company covers that gap for the 2 or 3 days a week the work actually needs, without adding a full-time executive to a business that cannot carry one.
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Value Creation Is a Hard Requirement In 2026
Mario Peshev
