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Investment success, whether you’re a private equity firm, venture capital group, family office, or independent sponsor, can hinge on how you structure, operate, and exit investments. From the moment you begin fundraising to the final negotiations at exit, tax considerations can either enhance value or erode it.

We break down the top five tax factors that you should consider during each investment stage, revealing where opportunities lie, where value may be lost, and how tax and structuring decisions can directly impact your returns. In our next article, we will cover our strategic approach to tackling these challenges.

To get started, it’s important to ask the right questions.

Top 5 Fundraising and Initial Investment Questions

A clear investment strategy aligns decisions with investor goals, risk tolerance, and future capital needs. Here are the foundational questions to consider:

1. Where are we sourcing funds for investments and what are investor expectations?
2. What type of investment structure best aligns with our fund’s strategy and investor expectations?
3. Is the target’s tax classification aligned with our fund and investor goals, or will a pre-closing tax restructure be required?
4. Do we understand how the target’s purchase price will impact the tax outcome?
   • How does rollover equity, earnouts, and seller notes impact the purchase price?
   • How can third party debt be incorporated into the purchase price?
   • How does purchase price allocation impact the purchase price?
5. Is the tax structure flexible for future growth, acquisitions, and retention of key employees?

Top 5 Operational and Value Creation Questions

Once the deal closes, tax strategy shifts focus to reducing liabilities, supporting growth, and managing complexity. As you scale, thoughtful tax planning can help protect margins and reduce friction. The following questions can reveal opportunities for cost savings and strategic planning:

1. What are all the types of tax liabilities in our current structure?  
2. What are effective tax strategies to reduce annual tax liabilities?
3. How do future acquisitions impact our business?  
4. How do expansions across jurisdictions affect our tax position?
5. How could tax policy impact our current business, growth, and future exit?

Top 5 Exit Optimization Strategy Questions

Tax planning for exit starts long before a sale is imminent. Structuring for tax efficiency, identifying hidden value, and preparing the entity for due diligence can drive better outcomes. Consider the following questions when planning for an exit:

1. What tax structure is optimal to maximize a potential buyer’s value in our business?
2. How can tax-related gross-ups and hidden tax attributes increase the purchase price?
3. In what ways do transaction costs impact the gain on sale?
4. Could the sale qualify for full or partial gain deferral or exclusion?  
5. As a fund manager, what does a capital event mean for me?

We Can Help

At Elliott Davis, we work with investors at every stage of the investment lifecycle, from deal structuring through due diligence to operational optimization and exit planning. Our professionals help uncover tax efficiencies, reduce tax liabilities, and build flexible strategies that support growth, deal execution, and value creation.

Let’s talk about what comes next for your business. Reach out today to get started.

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.

The Struggle: Hidden Costs & Inefficient Spend Analysis

A global e-commerce company was bleeding money without realizing it. Their supply chain expenses were scattered across multiple suppliers, product categories, and sourcing channels, making it nearly impossible to pinpoint cost-saving opportunities.

Without a structured approach to spend analysis, cost containment efforts felt like a guessing game. The organization lacked visibility into:

• Supplier Performance: Were they overpaying for materials or services?
• Product-Level Costs: Which stock keeping units (SKUs) were driving the highest costs?
• Sourcing Efficiency: Were there better procurement strategies available?

Traditional reporting methods failed to connect the dots. The business needed a scalable, data-driven solution to reveal hidden savings and reduce their supply chain costs. That’s when executive management turned to Elliott Davis for help.

The Turning Point: Power BI & Advanced Spend Analysis

Enter Power BI, a game-changing business intelligence tool that transformed raw data into actionable insights. The Elliott Davis team deployed a 3-phase, 12-week approach to spend analysis and cost containment:

Phase 1: Discovery (4 Weeks)

Using Power BI, the Elliott Davis team conducted a deep dive spend analysis across:

• Suppliers
• SKU categories
• Regions & business units
• Contracted vs. off-contract spend
• Budget targets & margin benchmarks

The data was visualized in customized Power BI dashboards, revealing inefficiencies and pinpointing areas for cost reduction.

Phase 2: Diagnose (2 Weeks)

A Pareto Analysis, otherwise known as the 80/20 rule, (80% of outcomes originate from 20% of causes) uncovered critical cost drivers:

• 80% of total spend came from just 15 SKUs—a huge opportunity for cost containment.
• ABC Analysis (analyzing inventory spend by segmenting suppliers, products, or SKUs into values based on their significance or weighted contribution) categorized products to prioritize cost-cutting efforts.
  • A-Styles: 80% of spend, 20% of SKUs → High-priority cost-saving targets
  • B-Styles: 15% of spend, 10% of SKUs
  • C-Styles: 5% of spend, 70% of SKUs → Low return on investment (ROI) for cost-saving efforts

This analysis redirected procurement efforts toward the highest-value opportunities.

Phase 3: Disclose (4 Weeks)

The Elliott Davis team designed targeted cost containment strategies, including:

• Demand Aggregation: Consolidating supplier orders to leverage bulk discounts.
• Should-Cost Benchmarking (comparing the costs of products, components, labor and/or raw materials against a target cost established by industry standards, research, or competition): Setting price expectations based on data-driven insights.
• Duty Minimization: Strategic structuring of global sourcing to reduce tariffs and logistics costs.
• Vendor Performance Metrics: Creating key performance indicators (KPIs) for supplier efficiency and cost reduction.

The Resolution: $1.2 Million in Discovered Savings

By the end of the engagement, the client has $1.2 million in identified cost-saving opportunities with a roadmap for continuous improvement.

Key Results

• Improved supplier negotiations with clear spend data.
• Reduced SKU costs by targeting high-impact categories.
• Created Power BI dashboards for real-time cost tracking.
• Implemented strategic sourcing to enhance margins.

With this data-driven, repeatable framework, the company gained long-term control over spend assessment and cost containment, turning insights into sustained savings.

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.

Private equity (PE) firms and their portfolio companies (PortCos) face increasing pressure to drive growth, improve margins, and achieve business targets. Yet, even in the face of this pressure, many still underestimate the extent to which an increased focus on talent can drive value creation. But as capital remains expensive, holding periods extend, and competition for quality assets intensifies, talent is becoming a defining factor in performance and results.

Recent research suggests that PortCo leadership can impact financial outcomes by as much as15% and market valuation by 30%, underscoring the benefits of investing in human capital. In fact, top-performing companies invest 50% to 100% more in organizational initiatives, helping them to generate returns 3 to 4 times higher than their peers. On the other hand, when talent is not a priority, disengagement can result. The latest Gallup data shows that U.S. employee engagement dropped to its lowest level in a decade in 2024, with only 31% of employees engaged and 17% actively disengaged – meaning 1 in 6 employees opposes their employer’s goals. This disengagement erodes financial performance, leadership stability, and long-term value creation.

Linking Talent and Value Creation

Historically, PE firms paid little attention to human capital beyond replacing C-suite executives. While many PE leaders acknowledge that strong leadership is essential to sustained value creation, most still rely on traditional, transactional workforce management rather than investing in long-term development. Yet investing in talent can deliver measurable financial returns. The following emerging trends are making the financial case clearer than ever:

• Higher employee engagement drives profitability. Organizations in the top quartile for engagement achieve 18% higher productivity and 23% greater profitability.
• Longer hold periods demand structured leadership succession. As PortCos stay under ownership for extended timelines, the risk of leadership gaps grows significantly. Despite this, 55% of PortCos and 54% of PE sponsors admit they have no formal succession plan.
• Workforce disengagement weakens execution. High turnover at both the executive and workforce levels undermines PortCo performance.

Competing for Top Talent

The competition for top talent is associated with several key challenges, including:

• The lack of a leadership pipeline. A weak pipeline signals future instability.
• High executive turnover. Without clear succession planning, retention strategies, or aligned incentives, PortCos struggle to retain top talent – leading to extended holding periods and loss of institutional knowledge.
• Limited operational expertise. 31% of PortCo executives say sponsors lack the industry knowledge needed to guide leadership effectively.
• Disconnect between investors and operators. Conflicting priorities between PortCo CEOs and PE sponsors can lead to execution delays, friction, and weaker value creation plans.
• Failure to act quickly on workforce issues. Many PE firms acknowledge that waiting too long to address leadership gaps results in underperformance.
• Cultural misalignment in mergers. Post-merger integration challenges, including unifying leadership and maintaining employee engagement, can derail value creation.

However, top talent isn’t the only thing PE firms are vying for – they also face increased competition for investments, the challenges associated with a dwindling workforce, and the complexities of integrating corporate cultures during acquisitions. These challenges are only compounded by economic forces like margin compression, inflation, high interest rates, and investors’ expectations for faster returns.

Building Talent Infrastructure for Growth

PE firms that prioritize talent as a value driver consistently achieve stronger PortCo performance. Key initiatives for success include:

• Defining clear expectations for leadership roles and succession plans.
• Aligning strategy, compensation, and performance metrics to motivate management.
• Investing in leadership development to build a strong pipeline of future leaders.
• Tracking leadership effectiveness through retention, engagement, and profitability.
• Providing continuous training to sustain long-term growth.

We Can Help

At Elliott Davis, we specialize in optimizing organizational and talent strategies to drive value creation for PE firms and their portfolio companies. Our expertise helps to align leaders and teams, develop high-performing managers, and create structured workforce strategies that reduce turnover, improve execution, and accelerate value creation.

Contact us today to learn how we can help you build and execute your talent playbook.

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.