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Exit Readiness: Identifying Your Portfolio’s Achilles Heel Before Buyers Do

Capital is tightening as private equity fundraising becomes more challenging. Hold times since 2000 have risen by almost three years, with the median investment horizon now 5.8 years.¹ With this valuation gridlock, exits are stalling, driven by lower EBITDA multiples, which are lagging behind remaining portfolio assets by up to 1.1x², and a sharp decline in IPO activity — the lowest level since 2016.³ Significant medium- and long-term outlook uncertainty due to geopolitical tensions, volatile tariff policies and the resulting uncertain macroeconomic outlook means asset pricing for deals is highly challenging. Buyers are cautious; sellers are nervous, and this is driving a wedge through dealmaking — resulting in delayed returns and slow fundraising.

A new focus on preparing portfolios for successful exit is critical. Exit readiness isn’t only about clean balance sheets and operational discipline: Sellers able to craft and substantiate a compelling growth story will stand out. The 2025 Private Equity Value Creation Index⁴ published by FTI Consulting found that commercial factors such as artificial intelligence (“AI”) maturity, scalable revenue models and market differentiation now top the list of exit-critical factors, surpassing margin expansion.⁵ No longer swayed by cost efficiency alone, instead buyers are looking for credible narratives of future growth. In this environment, the real premium is paid for companies that demonstrate strong fundamentals – the ability to capture new markets quickly, defend against disruption and continuously evolve operating models. Embedding AI can be a powerful accelerator to these, with the potential to enhance core operations and create new avenues for value creation.⁶

Positioning Strategically for Premium Valuations

In addition to having a credible strategy, a strong leadership team, robust governance, reliable reporting, and a disciplined operating model, leading firms need to position their portfolio companies strategically. A critical part of exit readiness is tailoring a narrative to resonate with various buyer types: while strategic buyers may value integration opportunities and sector fit, financial buyers prioritize growth, cash flow and exit potential. This requires engaging early with deal teams, operating partners and advisors to shape a value narrative that highlights true differentiators — whether that is product strength, depth of customer relationships or unique market positioning.

Equally critical is evaluating your company’s market exposure, understanding its position, total addressable market and right to win in both core and adjacent segments to ensure that the growth story is grounded in market realities.

Case Study: Standing Out in a Commoditized Sector

Our client was a manufacturing company operating in a commoditized sector where valuations are typically lower than in less commoditized sectors. On the surface the company’s business appeared indistinguishable from competitors, yet a closer analysis revealed distinctive strengths, such as proprietary product development capabilities, patented technologies and deep customer relationships. Critically, its management understood the need to highlight the true competitive advantage. We worked together to highlight not just what was made, but also how it was made — with innovative engineering capability, efficiency, scalability and a structurally low-cost model. By shaping a data-backed exit narrative around these differentiators and framing them in a future-oriented lens, the client was able to position itself as a platform for growth rather than a commodity player and had a successful and profitable exit.

Building a Long-Term Growth Narrative

Operational effectiveness alone is no longer enough — sustainable growth is now a critical differentiator. Firms that evaluate market exposure and competitive positioning can create credible and forward-looking narratives, but they also need to guard against any ‘Achilles heel’ that could derail an investor’s interest. By identifying potential negatives upfront, firms can address risks proactively, rationalize them in the market context and get ahead of any concerns.

Case Study: Turning Disruption Risk Into Strength

A provider of commercial driver risk solutions saw its core value proposition called into question given the rise of autonomous vehicles. Rather than wait for investors to raise concerns, management commissioned a market study to assess adoption timelines and impact on driver demand. The research confirmed that while disruption would come, drivers would remain essential across key industries for years to come. By addressing the issue proactively, the company turned a potential weakness into a proof point for resilience, ultimately strengthening the buyer’s confidence in its long-term growth narrative. This focus on long-term growth, combined with robust financial planning, can help firms stand out and demonstrate their potential for future success.

Leveraging AI as a Differentiator

Technology and AI are emerging as essential drivers of exit value, with 57% of respondents in FTI Consulting’s 2025 Private Equity Value Creation Index citing AI and automation maturity as critical factors to a successful exit.⁷ Buyers want credible, measurable plans to use AI for growth, efficiency or risk mitigation. Assets with AI investments must align their commercial performance, technology, intellectual property and operations with buyer theses. Those without AI investments can still position for a strong exit by highlighting their AI potential, especially if they have the architecture, data and talent to support scalable deployment. Unique assets such as monetizable first-party data are catalysts for positive disruption, offering buyers not just incremental gains but the chance to reshape markets and unlock growth. At the same time, investors want confidence that these assets are resilient against AI-driven threats, requiring companies to show how they can both harness disruptive forces and mitigate downside risks to safeguard long-term value.

A thoughtful AI narrative and roadmap can enhance valuation, but overstating capabilities can undermine investor trust. This risk is heightened given that 42% of respondents in our 2025 Private Equity Value Creation Index name AI as the top force reshaping traditional models, though it still ranks near the bottom in frequency of use and execution quality — leaving many firms struggling to operationalize it and potentially more vulnerable to perceptions of “AI-washing.”⁸ Investors are perceptive and have seen similar hype cycles previously. To stand out, companies need transparent, expert-backed strategies and messaging that reflect real capabilities to showcase not just strategies for adoption, but measurable impact and clarity on where AI truly creates value.⁹

To get ahead of this, leaders should be exploring what applications and partnerships are most relevant to their business and industry, as well as where these can be credibly implemented.

Embedding Exit Thinking Early in the Process

Leading firms embed exit thinking into due diligence right from the outset, linking the deal thesis to value creation at an early stage. Whilst the investment thesis should provide a broad assessment of the target’s potential to drive the required performance for a successful exit, value creation focuses more narrowly on what successes the business needs to achieve that potential performance, including identifying any underutilized resources or capabilities that may be missing at acquisition. By aligning valuation drivers with management from day one, firms can change the conversation and clarify which levers to prioritize and implement with the appropriate level of governance, discipline and accountability needed to ensure progress without over-burdening the organization. The early stage exit considerations can then be more fully developed at a later stage, including any nuances relating to potential purchasers, whether exit is by way of float, strategic acquisition or a secondary.

4 Essential Steps for Exit Readiness

Private equity firms are in the eye of the storm, and the next chapter of value creation will demand more than just the usual fundamentals. Success will come to those who prepare early, embed exit thinking throughout the investment lifecycle and pair operational discipline with a credible growth story. To be best positioned when opportunity presents itself, firms should focus on four practical steps for exit readiness: