The Value Creation Playbook Behind 400+ Investments

Buying companies represents only the beginning. Creating value determines returns. Sami Mnaymneh built HIG Capital around systematic approaches to improving portfolio companies rather than relying primarily on multiple expansion or financial engineering.

This operational focus shaped the firm from inception. Over three decades, HIG Capital has invested in more than 400 companies, developing frameworks for driving improvements across diverse industries and geographies. The firm now manages $70 billion across seven strategies while maintaining emphasis on fundamental business improvement.

Mnaymneh serves as founder, executive chairman and CEO. Understanding how HIG Capital creates value across hundreds of portfolio companies offers insights into building repeatable improvement processes.

Operational Assessment

Value creation begins before acquisition. During due diligence, HIG Capital identifies improvement opportunities that will drive returns. Investment teams evaluate operational efficiency, market positioning, management capabilities and growth potential.

This assessment requires expertise beyond financial analysis. The firm employs over 500 investment professionals, many with operating backgrounds from consulting or previous roles at companies. These professionals understand business operations alongside financial modeling.

Before founding HIG Capital with Tony Tamer in 1993, Mnaymneh built foundations for operational focus. He graduated first in his class at Columbia University with a B.A. summa cum laude, then earned both a J.D. from Harvard Law School and an M.B.A. from Harvard Business School with honors. Following roles at Morgan Stanley and The Blackstone Group, he recognized operational improvements drive sustainable value.

The operational assessment identifies specific initiatives that will enhance performance. Can companies expand sales forces to capture market share? Do supply chains have inefficiencies that better management could eliminate? Are pricing strategies optimized or leaving money on the table?

These assessments become part of investment theses. Teams don’t just identify attractive businesses but also articulate how HIG Capital will improve them. This discipline ensures operational value creation receives equal emphasis to financial structuring.

Management Partnerships

Portfolio company management teams execute value creation plans. HIG Capital works collaboratively rather than dictating approaches. Successful partnerships require mutual respect and aligned incentives.

Board representation provides governance oversight. HIG Capital typically places professionals on portfolio company boards, participating in strategy discussions and monitoring performance. However, boards govern rather than manage. Day-to-day operations remain management’s responsibility.

Management incentives align interests through equity ownership. Key executives receive meaningful stakes ensuring they benefit from value creation they help drive. This alignment reduces principal-agent conflicts common when ownership and management separate.

However, HIG Capital also replaces management when necessary. Some acquisitions involve companies needing leadership upgrades. The firm leverages networks to recruit experienced executives who can strengthen portfolio companies.

The operational focus attracts management teams valuing partnership beyond pure capital. CEOs concerned about companies’ futures after exits appreciate investors demonstrating operational capabilities. This reputation helps win transactions even when not offering highest prices.

Sales and Marketing Improvements

Revenue growth represents the most direct value creation path. HIG Capital works with portfolio companies on sales force expansion, marketing effectiveness and customer acquisition strategies.

Sales force expansion often provides quick wins. Middle-market companies frequently operate below optimal sales capacity. Adding representatives in underserved territories or customer segments can generate substantial revenue growth.

Marketing improvements focus on customer acquisition efficiency. Digital marketing, content strategies and lead generation programs often receive less investment than warranted at middle-market companies. Bringing sophisticated approaches can significantly improve customer acquisition.

Pricing optimization also matters. Many companies leave money on the table through suboptimal pricing strategies. Value-based pricing, dynamic pricing and segmentation strategies can expand margins without requiring cost reductions.

However, revenue initiatives require time to generate results. Sales force expansion needs several quarters before new representatives reach full productivity. Marketing programs require testing and optimization. Patient capital supports these initiatives better than quarterly earnings pressures.

Operational Efficiency

Cost structure improvements represent another value creation lever. HIG Capital works with portfolio companies identifying and eliminating inefficiencies without harming long-term capabilities.

Supply chain optimization reduces procurement costs and inventory levels. Consolidating suppliers, negotiating better terms and implementing just-in-time practices can substantially improve working capital and margins.

Process improvements eliminate waste and enhance productivity. Lean manufacturing principles, workflow optimization and automation can reduce costs while improving quality and delivery times.

Technology implementation often provides efficiency gains. Middle-market companies sometimes underinvest in IT systems. Modern ERP systems, CRM platforms and analytics tools can significantly enhance operational efficiency.

However, efficiency initiatives require careful execution. Cost cutting can damage businesses if taken too far. Maintaining customer service quality, employee morale and innovation capabilities matters as much as reducing expenses.

Add-On Acquisitions

Buy-and-build strategies create value through consolidation. HIG Capital helps portfolio companies identify, evaluate and integrate acquisitions that strengthen competitive positions.

Add-on acquisitions provide multiple benefits. They increase scale, generating purchasing power and operating leverage. Geographic expansion accesses new markets. Capability additions through acquiring companies with complementary products or services enhance competitiveness.

Integration execution determines add-on success. Capturing synergies requires planning, resources and sustained attention. HIG Capital provides expertise and support helping portfolio companies execute integrations effectively.

The firm’s scale also facilitates add-ons. Access to capital through HIG Capital’s platform allows portfolio companies to pursue acquisitions they couldn’t finance independently. WhiteHorse’s lending capabilities provide flexible debt capital for transactions.

However, acquisition strategies carry risks. Overpaying for targets, underestimating integration challenges or pursuing ill-fitting acquisitions can destroy value. Disciplined evaluation and execution prevent these pitfalls.

Measurement and Accountability

Tracking progress ensures initiatives deliver expected results. HIG Capital implements performance measurement systems monitoring key metrics at portfolio companies.

Financial metrics include revenue growth, EBITDA margins, cash flow generation and working capital efficiency. These measures track overall performance and identify trends requiring attention.

Operational KPIs vary by industry but typically include customer acquisition costs, customer retention rates, production efficiency, quality metrics and employee productivity. These indicators provide early warnings when initiatives aren’t working.

Regular reporting rhythms maintain accountability. Monthly financial packages, quarterly business reviews and annual planning processes create forums for discussing performance and adjusting strategies as needed.

However, measurement must balance tracking progress against creating bureaucratic overhead. Middle-market companies benefit from sophisticated metrics but can be overwhelmed by excessive reporting requirements.

Sector-Specific Approaches

Value creation approaches vary across industries. Healthcare companies face different opportunities than technology businesses or industrial manufacturers. HIG Capital developed sector-specific expertise informing customized value creation strategies.

Healthcare value creation often emphasizes regulatory compliance, clinical quality and payor relationships. Technology companies focus on product development, customer retention and scalability. Industrial businesses prioritize operational efficiency and supply chain optimization.

This sector focus required building specialized knowledge over time. Investment teams completing multiple transactions in specific industries developed pattern recognition about what works. This accumulated wisdom improves both deal selection and value creation execution.

The firm’s scale supports sector specialization. With over 500 investment professionals, HIG Capital can dedicate teams to specific industries rather than requiring generalists to cover all sectors.

Looking Forward

Value creation approaches must evolve as markets change. Strategies that worked historically may prove less effective as competition intensifies, technology disrupts industries and economic conditions shift.

Current market conditions emphasize operational improvements over financial engineering. With interest rates elevated and purchase multiples high, fundamental business improvement matters more than leverage or multiple expansion.

This environment potentially advantages firms like HIG Capital that emphasized operations from inception. Capabilities built over three decades become more relevant when financial engineering alone proves insufficient.

Whether these approaches continue delivering competitive returns depends on execution and adaptation to changing conditions. The framework exists; results will determine if operational focus maintains its effectiveness.