Rethinking Value Creation: Financial Engineering Isn’t Enough
For as long as I can personally remember, the term value creation in the investment world has carried a fairly narrow meaning. In private equity, it often comes down to financial engineering - recapitalizations, leverage, cost rationalization, asset sales. Don’t get me wrong, these moves can be powerful. There’s no question they make balance sheets cleaner, boost returns on paper, and can create short-term shareholder gains.
On the other hand, financial engineering alone rarely builds durable growth. It doesn’t explain why sales are stagnant, why brands lose relevance, or why customer acquisition isn’t translating to market share. That’s the missing piece - and where my approach as “Investor-Operator” comes in.
Specifically in the private markets, financial engineering isn’t enough. Private equity has long excelled at optimizing capital structures and cutting costs. These tactics are effective in closed, controlled environments. But, when it comes to the private markets and private investments, relying solely on balance sheet maneuvers leaves long-term growth underdeveloped.
The truth is, no amount of leverage can fix a product that isn’t resonating with consumers or a brand that no one knows exists. Eventually, growth (or lack thereof) shows up in the numbers.
However, the gap widens in the public markets. In small and mid-cap public companies, the challenge is seen more pronounced. Many of these businesses generate healthy cash flow, yet management focuses on (almost) exclusively deleverage or cost control. The top line stalls, the equity store flatlines, and the market applies a depressed multiple. Aka, depressed shareholders.
Shareholder activists often try to apply private equity tactics in these settings - pressuring for divestures, buybacks, or restructurings. But without cost control, and without operational execution, these plays rarely move the needle in a sustainable way (insert onslaught of “value trap” investments in the public markets).
I’ve thought a lot about an “Investor-Operator” model. This differentiated approach requires a dual lens:
Financial Discipline: An understanding of cash flow, leverage, capital allocation and balance sheet priorities.
Operational Execution: The underrepresented part. The ability to diagnose why sales aren’t growing, and to fix it, of course.
This dual approach looks beyond financial optics and asks: Why isn’t this business converting brand, customer, and product potential into growth? Often times, the answer lies in marketing, distribution, and execution - areas that don’t necessarily require heavy capital but do require expertise and focus. When a publicly traded company falls into the “low-to-no growth” category, often times management focuses so heavily on financial engineering to defend and or save the depressed stock price. A missed opportunity.
Most of the time, specifically in the public markets, many of these companies look pretty similar on paper:
Market Cap: Call it $200M-$1B
Consumer-facing: Retail, CPG, Franchising or Services.
Financial Profile: Positive free cash flow, but flat to -10% YoY revenue.
Leverage: 4-6x Net Debt/EBITDA
Valuation: 4-7x EBITDA, reflecting muted growth expectations.
These are often stable but stagnant businesses - cash generative but neglected, with under leveraged brands and inefficient understandings of sales conversions and operational discipline. Think regional franchisors with flat same-store stales, legacy consumer brands with loyal but aging customers, or niche retailers that lack digital presence. On Wall Street, they are easy to ignore (“value traps” and too small for large institutional investments or coverage). For an “Investor-Operator”, they’re fertile ground.
So, how do we reignite shareholder value? There’s a clear opportunity to apply private-equity style rigor in a public market context. By pairing financial insight with operational know, you can re-ignite revenue and shift investor perception. Management gets a growth partner who understands both the balance sheet and the sales floor. Shareholders get more than cost-cutting promises - they get a credible, narrow path to growth. And the market rewards that visibility with multiple expansion.
In summary, financial engineering is necessary, but not sufficient alone. Sustainable value creation demands more - it demands an operator’s lens. That’s the heart of the “Investor-Operator” model: combining capital discipline with executional excellence. It’s a collaborative form of activism, designed not to dismantle a business, but to help them grow.
The next era of shareholder value won’t come just from balance sheets. It will come from brands that sell, strategies that execute, and businesses that grow.