The way sponsors generate returns has changed a great deal in just a few years. According to the McKinsey’s 2026 Global Private Markets Report, since 2021, private equity firms have more than doubled the size of their operating groups on average since 2021. Over the same period, they have expanded specialized capabilities and brought operating teams in earlier in the investment life cycle.

In a market once characterized by inexpensive debt, abundant capital and rising valuations, sponsors would often rely on favorable market conditions to drive returns. Many sponsors relied on horizontal expansion through add-on acquisitions funded by low-cost leverage, with favorable economic conditions lifting results across much of the market. That model is under pressure. Higher borrowing costs, rising seller expectations throughout the middle market, increased competition for quality assets, and more selective limited partners are placing greater pressure on firms to generate value through operational improvement and organic growth rather than financial engineering alone.

While sponsors continue to face pressure to deploy capital, many are approaching acquisitions with greater discipline and a stronger focus creating long-term value. Instead of relying primarily on leverage or multiple expansion, investors are now looking for businesses that they can not only buy but grow and build over time. Firms are also re-underwriting deals they have already closed to find value that was overlooked the first time.

Increasingly, they are expected to improve core business operations, strengthen performance across platform companies, and demonstrate a clear path to value creation.

In fact, they’re even finding that some of the largest growth opportunities already exist in what they won. Private equity firms are revisiting closed deals, or re-underwriting, to see what’s been left uncovered.

These changes affect how sponsors evaluate targets and how they work with portfolio companies after closing. Limited partners now expect sponsors to have a credible operational improvement thesis across their portfolios. As a result, many firms have built dedicated, in-house operating and value creation teams. These teams are increasingly involved pre-closing during the due diligence and integration and transition planning phases as well as post-closing throughout the investment lifecycle and have become an important differentiator when attracting both investors and prospective sellers.

As sponsors invest more in operational transformation and technologies to fuel sustainable growth, they are bringing in legal counsel more frequently and earlier to help businesses scale, manage risk, and prepare for what comes next.

Market Trend 1: How Are Private Equity Firms Investing in Today’s Competitive Market?

After several years of cautious dealmaking, private equity firms want to put their capital to the most productive use. At the same time, sponsors are far more selective about where and how they invest. Today’s investors are focused less on buying a company and waiting for market conditions to improve and more on identifying businesses that align most closely with the investors’ and their value creation teams’ deepest levels of experience and have clear indicators for growth and operational improvement where they can make the most impact.

Competition for high-quality assets remains intense. Even with deal activity moderating, thousands of private equity sponsors are often pursing the same pool of attractive targets.

The question sponsors ask has changed. It used to be “Can we buy this company at the right price then sell it later at a better one?” Now it is, “How can we help this company become more valuable during our ownership period?”

Why Legal Due Diligence Now Extends Beyond the Closing Table

Sponsors want advisors who focus on outcomes in the sense that they’re thinking of what the business needs to succeed after the deal closes. For legal counsel, this means transactions are no longer viewed as the finish line. During legal due diligence, sponsors and their advisors frequently uncover areas that need to be cleaned up including:

• Regulatory compliance
• Commercial agreements
• Labor and employment matters
• Cybersecurity and other data concerns
• Corporate governance and management incentive programs
• Compliance programs

Fixing these exposure areas promptly post-closing puts the portfolio company in a position to succeed versus being slowed down by unresolved problems. Acting earlier rather than later also means the details are still familiar in everyone's minds and can be resolved quickly, avoiding the potential friction with the second-round sponsor or other prospective buyer when a private equity client is looking to exit its investment.

Ultimately, resolving issues early can reduce diligence concerns during a future sale process, helping sponsors achieve a smoother exit and stronger outcome.

Market Trend 2: How Do Private Equity Firms Create Value Beyond Closing a Deal?

One of the most significant shifts in the private equity landscape is the growing emphasis on operational improvement. Before, investors often generated returns through a combination of leverage, acquisitions and valuation growth. Today, most sponsors are focused on building stronger businesses from the inside out.

Value creation has become a central component of the modern private equity thesis. In an environment where leverage is more expensive and high-quality assets being harder to find, sponsors can no longer solely count on add-on acquisitions or market appreciation to drive returns alone. Instead, they are expected to identify operational opportunities, support organic growth, and create measurable improvements across their portfolio companies.

The Rise of In-House Value Creation Teams 

Many private equity firms have responded by building in-house operating groups, often referred to as value creation teams. Unlike traditional outside consultants who are brought in after a transaction closes, these teams are increasingly involved throughout the investment cycle, both pre- and post-transaction, helping evaluate opportunities during diligence, supporting integration planning and accelerating growth initiatives immediately after closing.

McKinsey notes that operating performance is playing a larger role in value creation, and that private equity firms have invested heavily in operating teams and transformation capabilities.

In practice, operational value creation often includes:

• Upgrading leadership teams
• Adding seasoned industry experts to the board
• Expanding into new regions
• Creating new lines of business
• Offering complementary products and services
• Improving financial reporting capabilities
• Investing in technology infrastructure

Finding Growth Within the Existing Portfolio

More and more, sponsors are finding that some of the most compelling growth opportunities already exist within the businesses they own. Rather than relying exclusively on add-on acquisitions, firms are evaluating how existing infrastructure, customer relationships and operational capabilities can support new business lines, geographic expansion and additional revenue streams. In many cases, value creation is less about acquiring something new and more about unlocking untapped potential within the existing platform.

Value creation is by itself a risk-making endeavor. That makes it essential to have experienced legal counsel onboard as an extension of the investment team, both to help companies pursue opportunities they may not otherwise consider and to make sure each step is taken with a clear view of the risk and in support of long-term enterprise value. As sponsors continue to focus on value creation, legal counsel is increasingly helping businesses take thoughtful, risk-adjusted steps that support long-term enterprise value.

What Types of Companies Are Private Equity Firms Targeting?

Despite market uncertainty, private equity firms are still attracted to fragmented industries because they offer more room to build something bigger. These “fragmented” industries include services like:

• Business and professional services
• Health care
• Industrial
• Niche manufacturing
• Other lower-middle market sectors

These markets often contain strong founder-led companies with loyal customer bases but significant opportunities for operational improvement and professionalization. For sponsors, the appeal is the ability to build larger as they support both organic growth initiatives and disciplined add-on acquisition strategies while creating larger, more sophisticated platforms, making multiple expansion more achievable.

In many cases, the value extends beyond cost savings. By combining strategic acquisitions with operational improvements, private equity firms can create larger, more sophisticated organizations that often command stronger valuations and attract future buyers.

Bringing professional management, improved systems and experienced operating leaders into smaller or founder-led businesses can unlock efficiencies, accelerate growth and position companies for long-term success. This combination of scale, operational excellence and enhanced market positioning is one of the primary reasons fragmented industries remain attractive investment targets.

While technology and AI continue to attract attention, many investors remain focused on businesses with tangible operations, stable price-to-book values, recurring demand, and clear room for improvement. Manufacturing, industrials, business services, professional services and other "main street" industries continue to be attractive because they offer multiple avenues for value creation through operational improvements, consolidation and long-term growth

The Role of Legal Counsel in Add-On Acquisitions and Integration 

Each acquisition adds legal complexity, which makes experienced counsel more important.

Attorneys can help sponsors and portfolio companies:

• Navigate the integration process
• Align commercial contracts
• Update governance structures
• Implement compliance programs
• Address regulatory requirements and matters implicated by geographic expansion

Executing these steps well is now a baseline requirement for getting the most long-term value from an investment. 

The Bottom Line: Private Equity Value Creation Requires Disciplined Execution 

Sponsors can no longer rely solely on leverage, acquisitions and market appreciation to generate returns. Today, they are expected to create value through operational improvement, strategic growth, and disciplined execution. As those expectations continue to rise, the most successful firms will be those that can balance opportunity and risk well, and transform their portfolio companies into stronger, more scalable businesses positioned for long-term, sustainable growth and a successful exit.

Looking for Legal Counsel That Helps Your Business Grow?

Whether you're evaluating an acquisition, scaling a portfolio company or preparing an exit, Ice Miller's Private Equity team provides practical, business-focused counsel that supports growth and maximizes value. Contact our private equity team.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.