VSS banks on Treya profiting from private equity’s struggle

October 8, 2024 (Preqin News) – VSS Capital Partners has acquired Treya Partners, a management consulting firm specializing in procurement value creation, strategic sourcing, and spend management advisory services for mid-market private equity-backed corporate clients.

The platform acquisition, the 100^th VSS has completed, comes as private equity firms increasingly must create more of the return from operational improvements at portfolio companies.

The value held within private equity-backed buyout companies is at a record $2.93tn as of December 2023, according to Preqin data, having more than doubled from $1.41tn in December 2019, as exits have been harder to achieve. Higher rates reduce the ability to boost equity returns with cheap debt, while also hitting valuations and making it harder to achieve increased multiples on exits.

Capital called for investments has exceeded capital returned to investors every year since 2016, to the tune of $2.47tn over seven years. The gap has widened since the pandemic, with 1.5x more capital called than distributed over the past four years (2020–2023), compared to 1.3x in the preceding four years (2016–2019).

Net capital distributed: a $2.47tn shortfall

Capital called up vs. capital distributed, 2014–2023

_{Source: Preqin Pro}

Buyout fund managers must rely on their ability to generate operational value in their portfolio companies. Consultancy Bain & Company flagged the issue in its Global Private Equity Report 2024. ‘The industry has relied disproportionately on rising multiples and revenue gains to generate returns while margin improvement has contributed practically nothing. That no longer works when rising rates serve as ballast for asset multiples,’ it said.

Smaller and mid-sized buyout managers have fewer resources to devote to portfolio companies. Trent Hickman, Managing Director at VSS, said Treya enabled smaller companies to access the kind of sophisticated sourcing used by larger firms: ‘Historically, lower middle market businesses have had less access to highly sophisticated, outsourced procurement options than their upstream competitors, but Treya effectively evens the playing field, allowing smaller companies access to material savings.’

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