From Financial Engineering to Operational Excellence: How Private Equity is Reshaping CPG
Private equity has always played an outsized role in consumer goods — from the Blackstone-led acquisition of Hilton Hotels to KKR's landmark buyout of RJR Nabisco. But something fundamental has shifted in how PE firms create value in CPG companies, and most operators haven't fully absorbed what it means for how they should run their businesses.
At last’s LS Elevate roundtable on portfolio evolution, Catherine Roggero—Lovisi, former President of Revlon North America and CEO of Modern Meadow (a biomaterials company backed by Temasek and Horizons Ventures) — described the shift in a single stat:
"Five years ago, two-thirds of PE value creation came from leverage and market timing. That's not the case anymore. Today, it's really about actual operational improvement, digital transformation, and commercial excellence. Very operationally focused."
In other words, private equity isn't just buying companies cheaply, loading them with debt, and selling them high anymore. They're buying companies and making them operationally excellent — because that's where the value is.
If you're running a CPG company — whether you're PE-backed, considering a sale to PE, or competing against PE-backed brands — this shift changes everything about what matters.
The Old Playbook: Leverage, Timing, and Multiple Arbitrage
For decades, the classic PE value creation model was built on three levers:
1. Financial engineering: Buy a company with a mix of equity and debt, use the debt to reduce the equity check, and capture the returns on a leveraged basis. If you buy a company for $100M with $70M of debt and $30M of equity, and sell it for $150M after paying down $20M of debt, you've turned $30M into $80M — a 167% return.
2. Market timing: Buy when valuations are low (post-recession, out-of-favor category, distressed seller), hold for 3-5 years while the market recovers, and sell when valuations are high. The company might not perform dramatically better, but the multiples expand from 6x to 10x EBITDA, and you make money on the re-rating.
3. Multiple arbitrage: Buy small companies at low multiples, bolt them together into a larger platform, and sell the combined entity at a higher multiple (because larger companies trade at premium valuations).
This model worked exceptionally well when interest rates were low, credit was cheap, and public market valuations were rising. A PE firm could lever up a consumer brand, do some basic cost-cutting, wait for the market to improve, and generate strong returns without fundamentally transforming the business.
But three things have changed that broke this playbook:
Interest rates rose dramatically in 2022-2024, making leverage expensive and increasing the risk of distressed situations
Public market valuations compressed, especially for consumer goods companies with low growth and modest margins
Strategic buyers (corporates) became more disciplined, refusing to pay premium multiples for companies that weren't demonstrably best-in-class
The result? PE firms can't rely on cheap debt, favorable exit multiples, or market timing to generate returns. They have to actually improve the businesses they own.
The New Playbook: Operational Improvement and Value Engineering
Catherine described the new PE value creation framework with remarkable specificity. The firms that are winning today are focused on six operational pillars:
Pillar 1: Financial rigor
Not financial engineering — financial rigor. PE firms now expect portfolio companies to have real-time visibility into EBITDA, gross margin, free cash flow, and working capital at the SKU and customer level, not just the consolidated P&L.
Catherine listed the metrics PE firms now track obsessively: "EBITDA, revenue, gross margin, free cash flow, working capital. These aren't new metrics, but the expectation is that you can pull them weekly, not quarterly, and that you understand the drivers well enough to forecast accurately 90+ days out."
The implication: if you're running a CPG business and can't explain why gross margin moved 50 basis points last month, or why working capital spiked in Q2, you're not ready for institutional ownership.
Pillar 2: Commercial excellence
This is where the real value creation is happening. PE firms are pushing portfolio companies to deeply understand their customer economics: customer lifetime value (LTV), churn rate, repeat purchase rate, and cohort behavior.
Catherine explained: "It's not enough to say 'revenue is up.' You need to know: are we retaining customers? Is LTV improving or declining? What's driving churn? Are we acquiring the right customers or just any customers?"
A beauty brand we recently worked with was PE-backed and went through this transformation. Pre-acquisition, they measured success by total revenue and new customer acquisition. Post-acquisition, the PE firm forced them to build a full LTV model by cohort, channel, and product category. What they discovered was shocking: 40% of their customer acquisition spend was going to customers who never made a second purchase. By reallocating that budget to retention and higher-LTV channels, they increased profitability by 22% without growing revenue.
Pillar 3: Cost to serve and operational efficiency
PE firms are maniacal about cost to serve — the fully loaded cost of acquiring, fulfilling, and servicing a customer. This includes not just COGS and shipping, but customer service, returns, payment processing, and overhead allocation.
Catherine described the shift: "Revenue per employee used to be a vanity metric. Now it's a core operational KPI. PE firms want to know: are we overstaffed? Are we automating the right functions? Can we serve more customers with the same headcount?"
One food & beverage company in our network went through a PE-led operational review and discovered they were spending $2.8M annually on manual order entry because their ERP system didn't integrate with their largest retailer's ordering platform. The PE firm funded a $400K integration project that paid for itself in five months.
Pillar 4: Digital transformation and tech stack quality
This is the pillar that's most surprising to traditional CPG operators. PE firms are now evaluating tech stack quality, data infrastructure, and AI readiness as core value drivers — not just operational enablers.
Catherine was explicit: "Tech stack quality, AI integration, infrastructure flexibility, and safety — these are now first-order questions in diligence. If your data is locked in siloed systems, if you're running on legacy ERP, if you don't have a data warehouse, you're going to get a valuation haircut."
The reason is simple: PE firms know that companies with modern tech stacks can move faster, test more, and scale more efficiently. A DTC brand with a headless commerce stack, a CDP (customer data platform), and automated marketing workflows can launch new products and optimize pricing in weeks. A brand on a legacy monolithic platform takes quarters.
Pillar 5: Leadership bench strength
PE firms used to focus almost exclusively on the CEO and founder. Now they're evaluating the full C-suite — and in particular, the strength of the CFO and the operations leader.
Catherine explained: "It's not just the founder or the scientist anymore. The full C-suite matters — especially the finance leader who can support growth and fundraising. If your CFO can't model scenarios, articulate the cash conversion cycle, and present to a board, that's a gap."
In our executive search practice, we've seen this shift firsthand. Five years ago, PE-backed clients would come to us for a CMO or Chief Commercial Officer. Now they're asking for CFOs with FP&A depth, COOs with supply chain and tech chops, and Chief Product Officers who can balance innovation velocity with margin discipline.
Pillar 6: Clear exit strategy and timeline
Finally, PE firms are building exit narratives from day one. They're not just buying companies and hoping someone will pay more in 5-7 years. They're identifying the specific strategic or financial buyers, understanding what those buyers value, and reverse-engineering the business plan to maximize attractiveness at exit.
Catherine described how this shapes decision-making: "You need a clear timeline and market signals. Is this a 3-year hold? A 5-year? A 7-year? Are we building for a strategic sale or an IPO? That determines everything — which investments we make, which markets we enter, which capabilities we build."
What This Means for CPG Operators (Even If You're Not PE-Backed)
Here's the uncomfortable truth: even if you're not PE-backed and have no plans to sell to private equity, these six pillars are becoming table stakes for any consumer goods company that wants to compete.
Why? Because PE-backed brands are your competition, and they're operating with a level of rigor and velocity that's hard to match if you're running the old playbook.
Consider what's happening in beauty right now. Catherine noted that "skincare M&A is leading the beauty category." PE firms are buying challenger skincare brands, installing world-class operators, upgrading their tech stacks, and scaling them aggressively. These brands are using AI-driven personalization, predictive inventory management, and cohort-based marketing that makes traditional brands look slow and analog by comparison.
If you're a corporate-owned beauty brand competing against these PE-backed challengers, you can't afford to wait quarters for IT to provision a new analytics tool, or run annual planning cycles when your competitors are re-forecasting monthly.
The new baseline is:
Real-time financial visibility (weekly EBITDA, daily cash)
Customer-level economics (LTV, churn, repeat rate by cohort)
Modern data infrastructure (centralized data warehouse, BI tools, automated reporting)
Cross-functional operators who understand the full P&L, not just their function
Speed of decision-making measured in weeks, not quarters
If this feels overwhelming, start with one question: "If a PE firm bought us tomorrow, what would they change in the first 100 days?" That's your roadmap
The ESG Evolution: From Nice-to-Have to Governance Requirement
One final shift worth highlighting: ESG (Environmental, Social, Governance) has evolved from a values-driven nice-to-have to a governance and compliance requirement — but not in the way most people expected.
Catherine described the arc: "ESG used to be something everyone wanted for personal or ethical choice. Then it was pared down to a nice-to-have. Now it's back to being important, but from a different angle — governance, compliance, and if you have an international brand or want to go international, ESG is a must-have."
The reason is regulatory, not philosophical. The EU's Corporate Sustainability Reporting Directive (CSRD), California's climate disclosure laws, and similar regulations in other markets mean that companies above a certain size threshold must report ESG metrics with the same rigor as financial metrics.
For PE-backed companies, this means:
ESG compliance is now a diligence item ("Do they have the data infrastructure to report under CSRD?")
ESG gaps create valuation haircuts ("We'll need to invest $2M to get them compliant before exit")
ESG capabilities are a competitive advantage for strategic exits ("Large corporates won't acquire companies that don't meet their ESG reporting standards")
If you're a mid-sized CPG brand planning for eventual exit — whether to PE or to a strategic buyer — start building your ESG reporting infrastructure now. It's not about being "green." It's about being investable.
The Leadership Implication: Who Can Execute This Model?
The shift from financial engineering to operational value creation changes what PE firms look for in leadership — and what kind of executives succeed in PE- backed environments.
Catherine was blunt about this: "The ones that are winning are operation-led by true operators, with AI-enabled decision-making, commercial excellence, and a very clear exit narrative."
In our search work, we're seeing three profiles that PE firms consistently hire into portfolio companies:
Profile 1: The Operator with Tech Fluency
This is someone who's run a P&L, understands unit economics, and can also evaluate tech stack decisions. They don't need to write code, but they need to know the difference between a modern composable architecture and a legacy monolith, and why it matters for speed and cost.
Example: a VP of Operations who implemented a new WMS (warehouse management system) and ERP at a previous company understands how data flows between systems and can articulate ROI on automation investments.
Profile 2: The CFO Who Can Tell the Growth Story
PE firms want CFOs who aren't just controllers or accountants — they want finance leaders who can model scenarios, articulate the investment thesis, and present to boards and potential buyers.
Catherine emphasized this: "The finance leader needs to support growth and fundraising. That means being able to say: 'Here's our LTV by cohort, here's how it's trending, here's the sensitivity analysis if we increase customer acquisition spend by 30%, and here's why that creates value.'"
Profile 3: The Commercial Leader with Data Rigor
This is a Chief Commercial Officer, Chief Revenue Officer, or VP of Sales & Marketing who lives in the data — cohort analysis, attribution modeling, incrementality testing — and can ruthlessly reallocate budget to the highest-ROI channels.
PE firms have zero patience for "brand building" spend that can't be tied to customer acquisition or LTV expansion. They want commercial leaders who can defend every dollar of marketing spend with a cohort analysis.
If you're an executive considering a role at a PE-backed company — or a PE firm is acquiring your current employer — ask yourself: can I operate at this level of rigor? Because the days of running on intuition and annual budgets are over.
The Bottom Line: Operational Excellence is the New Alpha
The PE industry's shift from financial engineering to operational value creation is one of the most important trends reshaping consumer goods — and most operators are underestimating how quickly it's happening.
PE-backed brands are raising the bar on what "operationally excellent" looks like: real-time financial visibility, customer-level economics, modern tech stacks, and cross-functional leaders who can move at velocity.
If you're running a CPG company and you're not operating at this standard, you're not just falling behind PE-backed competitors. You're making yourself unattractive to the institutional buyers — both PE and strategic — who will be the exit options when you're ready to sell.
The good news? You don't need to be PE-backed to adopt the playbook. You just need to ask yourself the same questions PE firms ask:
Do we have real-time visibility into our unit economics?
Do we understand customer lifetime value by cohort and channel?
Is our tech stack modern enough to enable speed and experimentation?
Do we have operators who can think strategically and execute with rigor?
Could we articulate a compelling exit narrative to a buyer today?
If the answer to any of these is no, you've identified your roadmap. Because in 2026, operational excellence isn't a PE thing. It's a survival thing
By Lauren Stiebing, Founder & CEO, LS International
