Market Power Assessment

Private equity deal-making is more competitive than ever. Bid timelines are short — about three weeks — and buyers expect to pay 30–40% higher multiples, driven by abundant dry powder and low interest rates.

The goal is still a higher IRR for investors. Buyers also want confidence in a fast start after closing, which supports exit options. That is why leading PE firms add an upfront Market Power Assessment (MPA) alongside financial, operational and commercial due diligence.

The MPA finds “low-hanging fruit” that can lift growth and EBITDA within three to six months, and helps prioritize the longer-term agenda. It has three elements, and can be combined with any due diligence work.

1. Pricing power

Small, privately owned companies often lack consistent data and analytics, so pricing problems go unnoticed. The MPA looks for quick fixes:

• Price differentials — a PE-owned beverage company was priced well above competitors selling very similar products. Narrowing the gap could drive short-term growth.
• Promotion effectiveness — discounts that cut margin without enough volume should be replaced with more productive deals.
• Customer pricing rationale — pricing is checked against customer size and strategic importance. At one technology target, several customers received discounts far outside a rational band; realigning them could raise short-term margin.

2. Customer power

Many companies keep serving customers without looking at cost to serve, realized profit or the right product mix for each. The MPA examines churn and retention, finds quick ways to increase customer value, and highlights under-served segments to target immediately.

In one assessment of a B2B manufacturer selling to grocery and auto retailers, customers were segmented by growth, margin and strategic importance. After acquisition, the company focused on its strategic, high-margin customers and de-emphasized low-growth, low-margin ones.

3. Product power

Weak or unprofitable products often survive because of legacy decisions or founder preferences. Each brand is evaluated on four criteria: historical performance, strategic importance, contribution margin and growth potential.

For a household-cleaners target, two products earned price premiums over two years — a sign of brand equity — while another had to cut prices as private label grew. Realigning the product and customer mix improved margin, and set up a deeper portfolio review.

Conclusion