BeBeez’s monthly column dedicated to carve-outs, in collaboration with Newport & Co.
Article published in BeBeez Magazine no. 46 of 31 October 202
The governance of portfolio companies for traditional private equity model structures around a defined time horizon. The investor acquires a company, supports its development and, after a few years, realises the value created through a sale. But what happens when a sale is not on the cards? When each acquisition is permanently added to the previous ones and the portfolio continues to expand?
In a perpetual compounding model, each add-on permanently grows the group’s scope. Without a divestment horizon, governance cannot limit to preparing companies for sale: it must ensure managerial autonomy, financial discipline and the ability to allocate capital over time. The challenge is to build a control system capable of supporting potentially indefinite growth, without transforming the holding company into a centralised operational structure.
This is the fundamental issue in the governance of a perpetual compounder. The absence of an exit horizon does not merely represent a different ownership philosophy; it alters the relationship between shareholders and management. If every acquisition permanently increases the group’s complexity, the ability to grow depends on the capacity to govern an ever-increasing number of companies without proportionally expanding the central structure. Decentralisation therefore becomes an organisational necessity, even before it is a cultural choice.
The model of Nordic serial acquirers, such as Lifco, Indutrade and Lagercrantz, proves that leaner holding companies can support a strategy of recurring acquisitions, provided that the investee companies retain a high degree of operational autonomy and comply with strict financial discipline. The risk is twofold: excessive delegation can lead to managerial fragmentation, whilst overly intrusive control can compromise decision-making speed, entrepreneurial spirit and the ability to adapt to local markets. The issue is not how much control to exercise, but which decisions should remain with the shareholder and what to delegate.
At Newport & Co, a perpetual compounder specialising in corporate carve-outs, this distinction translates into a clear principle: the holding company should focus its oversight on decisions that drive long-term value creation, whilst leaving day-to-day management with the management of the portfolio companies. Four key areas remain at the heart of this approach: capital allocation, the appointment and remuneration of senior management, the approval of budgets and multi-year plans, and the setting of debt thresholds and instruments. Commercial, production and organisational decisions, on the other hand, remain the responsibility of the individual companies. The rationale is that the shareholder’s oversight should focus on decisions with the most lasting consequences, whilst operational decisions must be taken by those with direct knowledge of the business.
This balance requires a control system capable of ensuring transparency without interfering with day-to-day management. Newport & Co uses a limited set of economic, balance sheet and financial indicators, shared across all its investee companies, with a particular focus on profit margins, working capital, cash generation and the order book. However, the standardisation of reporting does not imply uniformity in management: Itasprings and Sall operate in vastly different sectors and require distinct business approaches. The holding company’s role is not to make the companies similar, but to ensure that their performance can be compared without compromising their specific characteristics. The boards of directors of the portfolio companies complement this system, serving as forums for strategic discussion and investment assessment, rather than merely acting as rubber-stamp bodies.
The complexity increases when the portfolio comprises businesses at different stages of maturity, as is frequently the case with corporate carve-outs. A division acquired from an industrial group may have competitive products and distinctive expertise, but still rely on its former owner for administration, treasury, information systems and procurement. In such cases, it would be a mistake to implement a fully decentralised governance structure immediately. In the first few months, the holding company must work directly alongside management to facilitate the operational separation, establish autonomous functions and introduce control systems.
This involvement, however, must be temporary. The level of oversight must be inversely proportional to the company’s organisational maturity. Once the separation is complete and management has the tools required to operate autonomously, the shareholder’s direct intervention must give way to strategic and financial oversight. Delegating too soon exposes the company to risks it is not yet equipped to handle; continuing to intervene for too long limits its autonomy and unnecessarily increases the demand for central resources.
It is precisely this transition that makes the model scalable. Each new acquisition introduces operational complexities and a need for supervision, but companies that have already stabilised must progressively draw on fewer resources from the holding company, freeing up organisational capacity for subsequent acquisitions. Portfolio growth can thus be sustained without a proportional expansion of the central structure. In this context, the selection of managers becomes one of the shareholder’s most important responsibilities: effective reporting can identify a deviation, but it cannot replace management’s ability to understand its causes and take action.
The absence of a divestment horizon also alters the financial framework. Without a future exit bonus, incentives must be linked to long-term value creation and sustainable cash generation. At the same time, the possibility of retaining a company indefinitely must not lead to a tolerance of inadequate performance. Permanent capital is not capital without discipline. The cash generated by portfolio companies must be continually assessed against opportunities for reinvestment, organic growth and new acquisitions. Decentralisation concerns the management of businesses, not ultimate responsibility for capital allocation.
The real challenge for a perpetual compounder therefore lies not only in identifying and acquiring attractive companies, but in building an organisation capable of continually welcoming new ones, guiding them towards autonomy and retaining control without managing them directly. Governance must evolve in line with the maturity of individual portfolio companies and the overall size of the portfolio, whilst upholding the principles of managerial accountability, transparency and financial discipline. In a model where companies are acquired to be held indefinitely, scalability is measured not only by the number of acquisitions made, but by the ability to govern an ever-expanding portfolio without compromising its autonomy. It is this balance between delegation and oversight that transforms a series of acquisitions into a group capable of creating value over time.
by Matteo Bordato,
Chief Financial Officer of Newport & Co Società Benefit
