The Build, Buy, or Partner Decision: Three Models for PE Operating Capabilities and When Each Makes Sense

Private equity’s operating model is at a crossroads. With leverage and multiple expansion no longer reliable engines of return, operational value creation has become the industry’s defining competitive lever. Since 2010, operational improvements have accounted for 47% of PE value creation—up from just 18% in the 1980s—while the contribution from financial engineering has fallen to 25% (PwC / Wikipedia).

The math is unforgiving: at today’s 11x EBITDA entry multiples and elevated interest rates, firms can’t justify premium purchase prices without tangible, systematic improvements in portfolio company performance (McKinsey & Company / Divestopedia). Limited partners know this—and they’re scrutinizing GPs’ operating models as closely as they once examined track records.

That’s why every top-25 PE firm now has formal operating resources (McKinsey). The question is no longer whether to invest in operating capabilities, but how. Should firms build proprietary internal teams like KKR’s 100-person Capstone group (costing $65–140 million annually)? Should they buy capabilities outright, following the Big 4’s billion-dollar acquisitions of operational and digital consultancies? Or should they partner with platforms like Accordion and Bain Capability Network for flexible, variable-cost expertise?

Each approach comes with different economics, timelines, and strategic implications. The wrong choice can cripple competitiveness—either by hemorrhaging capital on underutilized fixed costs or by ceding differentiation to rivals with proprietary operational playbooks. With $1.2 trillion in dry powder waiting to be deployed and 35% of portfolio companies held for six years or more, operating excellence isn’t just a lever—it’s the only path to LP-satisfying exits(Cambridge Associates).

The New Economics of Value Creation Demand Sophisticated Operating Models

Private equity has entered a new era where operating capabilities are non-negotiable. Multiple compression, higher debt costs, and limited partner (LP) scrutiny mean that “operational alpha” is now the primary—and often only—path to target returns (CAIS).

The numbers make the case. Entry multiples jumped from 7.8x EBITDA in 2009 to 14.5x in 2020, peaking even higher in 2021 before moderating to 11x through 2023 (Divestopedia, McKinsey & Company). At those valuations, multiple expansion is unreliable—firms need 20%+ revenue growth to achieve 3.0x MOIC, while companies with declining revenue lose money 58% of the time (Cambridge Associates).

Financial engineering’s contribution has collapsed from 51% of PE value creation to just 25% (PwC, Umbrex). LPs are watching closely: 40% said reputation outweighs returns when committing capital (Edelman Smithfield), and reputation increasingly means demonstrable operating capabilities (Umbrex).

Meanwhile, LPs have shifted focus from paper gains to realizations: McKinsey’s 2025 LP survey found 2.5x more LPs ranked DPI as their most critical metric than three years ago (Cambridge Associates). With hold periods now running up to three years longer than historical averages (GlobeNewswire, Divestopedia), portfolio companies must be run more effectively, for longer.

Competition only sharpens the urgency. In crowded auctions, sellers increasingly prefer buyers who can show concrete operating roadmaps, even over slightly higher bids (Singulier). And with 70% of M&A executives expecting generative AI to boost returns (PwC), firms without AI-enabled operating partners risk falling irretrievably behind.

Build Model: The $65–140M Annual Bet on Proprietary Operational Superiority

The build model—hiring full-time operators as employees dedicated exclusively to portfolio value creation—is the most capital-intensive option, but also the most powerful differentiator. These teams include ex-consultants, functional specialists, and former C-suite executives (Wikipedia).

The costs are significant: a mature 100-person team runs $65–140M annually, with VPs earning $400K–600K, senior operating partners $600K–1M+, and portfolio ops leaders up to $1.5M (Growth Equity Interview Guide, Wall Street Oasis). Adding systems, travel, and training pushes overhead 20–30% higher.

At mega-funds, this is viable: a $20B AUM fund at 2% fees ($400M annually) can allocate 16–35% of those fees to a 100-person ops group (A Simple Model). Below $15–20B AUM, however, the math strains unless deal flow is robust (Wall Street Oasis).

Maturity takes a decade. KKR launched Capstone in 2000, reaching full strength after 10+ years (Umbrex). Vista’s Value Creation Group formalized in 2006 and took 15 years to refine its 100+ point playbook (Umbrex). Apollo’s APPS, launched in 2020, is still 3–5 years from full maturity (Umbrex).

When done right, returns are extraordinary. Vista achieves shorter hold periods (4.7 vs 5.7 years), doubles EBITDA, expands margins from 20% to 50%, and maintains near-zero loss ratios. KKR’s Green Portfolio saved $1.2B across 25 companies while procurement initiatives cut costs by $700M+ (The Seattle Times, KKR). McKinsey research confirms: firms with structured value-creation teams see 2.2x ROI vs 1.7x for traditional models (McKinsey & Company, Getproven).

But risks loom:

• Fixed costs are dangerous when deal flow slows. The 2023–24 liquidity crunch strained firms carrying $100M+ ops payrolls.
• Talent churn is high—70% of KKR Capstone alumni become C-suites, one-third CEOs (MIT), forcing constant replacement.
• Competition for talent pits PE firms against Google, Amazon, and others for scarce ops and analytics leaders (Harvard Business School, EY).
• Scale thresholds are real—sub-30 person teams can’t achieve coverage or justify infrastructure (Wall Street Oasis).

When the Build Model Makes Strategic and Economic Sense

The build model works only under specific scale and strategy conditions:

• Mega-funds ($15B+ flagship, $100B+ AUM): Universally adopted. Fixed costs of $65–140M equal just 10–15% of management fees, justified by 15–20 deals annually across 50–100+ companies (Wall Street Oasis, Umbrex).
• Upper middle market ($5–15B): Teams of 30–75 professionals focused on priority areas. Advent, Permira, and Warburg Pincus operate this way. Fixed costs = 20–25% of fees.
• Middle market ($1–5B): Must go hybrid. 10–30 person teams strain fees (25–35%) without enough deal flow. Most combine core staff with external resources.
• Lower middle market (<$1B): Builds rarely viable—fixed costs eat 50%+ of fees. Better to rely on consultants, fractional execs, or advisor networks.

Strategy fit also matters.

• Works best for sector specialists with repeatable playbooks (e.g. Vista in software with its 100+ point VCG system, Umbrex).
• Critical for buy-and-builds (70% of 2023 PE deals involved add-ons, per Wall Street Prep / INSEAD Knowledge). Integration capabilities justify the fixed costs.
• Essential for turnarounds and carve-outs, where immediate, embedded operational intervention is required.

Conversely, the build model is less effective for quick-flip strategies, minority/growth equity, or highly diversified generalists where playbooks don’t scale well.

Finally, deal flow utilization is key. To justify a 100-person ops team, firms need 15–20 new deals annually and 50–100 portfolio companies. Anything less, and per-deal costs balloon.

Buy Model: Acquiring Operating Capabilities Through M&A

The buy model—acquiring consulting firms, operating platforms, or boutiques—offers the fastest route to operational expertise, though it remains rare among PE firms themselves. Instead, professional services giants like the Big 4 have led the charge, offering useful case studies on economics, integration, and outcomes.

Valuations reflect high demand. General consulting firms trade at 1.76x–5.20x EBITDA or 0.5x–4.0x revenue, while specialized financial consulting reached 13x–15x EBITDA in 2024 with 14% YoY growth. IT services averaged 11.2x–13.0x EBITDA, and software consulting peaked at 15.1x EBITDA. These multiples far exceed typical PE portfolio companies due to consulting’s high margins and low capex.

Notable deals include:

• Hellman & Friedman & Valeas Capital’s $1B investment in Baker Tilly (2024), valuing the firm at ~$2B or ~1.1x revenue / 10–12x EBITDA (Consulting.us).
• Grant Thornton’s acquisition of Stax (2025), expanding reach to 70% of PEI 300 firms (Grant Thornton, Consulting.us).

The Big 4 have pursued aggressive acquisition strategies:

• EY launched a $1B, 4-year PE-focused expansion plan in 2022, hiring tech consultants, operating directors, and buying boutiques (Institutional Investor, Dealroom).
• PwC acquired 22 firms in 18 months, including Sagence (data management) and Pollen8 (innovation consulting), rapidly building digital, data, and cloud capabilities (Institutional Investor).

Integration outcomes vary. Research shows successful cases when acquired firms enhance core business (e.g., ERP or data analytics improving audit quality) (Harvard Business School, ScienceDirect). But acquisitions outside core services often backfire, creating cultural misalignment and staffing inefficiencies.

Talent retention remains the top risk. Consulting averages 36% annual turnover, and founder-led boutiques carry 20–40% valuation discounts for key-person risk. Earnouts mitigate attrition but rarely solve it.

Despite challenges, the buy model offers immediate capability vs. 12–36 months to build. PwC’s four acquisitions in 18 months expanded cloud expertise on a timeline impossible organically (Dealroom). Yet acquisition prices are climbing—consulting M&A multiples rose 20% in 2024, fueled by PE-backed acquisitions making up 46% of deals (10-year highs).

When buy makes sense:

• To gain speed in disruptive markets like AI or cloud (Lookingforleverage).
• For professional services firms expanding PE advisory, where credibility and client networks matter (e.g., Grant Thornton’s Stax deal, Consulting.us).
• For sector specialists adding adjacent expertise, such as healthcare PE funds buying digital health consultancies.

For most PE firms, however, capital costs and cultural friction make buy a niche strategy. Hybrid approaches—minority stakes, acqui-hires, or revenue-sharing partnerships—may provide a better balance.

Partner Model: Flexible Access to Expertise Without Fixed Costs

The partner model—working with external providers instead of building or buying—remains the most capital-efficientand widely used model. The ecosystem has grown increasingly sophisticated, with multiple platforms emerging as critical partners.

• Accordion: 1,200+ professionals, serving 150+ PE firms (Blackstone, Carlyle, KKR). Provides CFO office support, ERP/CRM implementations, data & analytics (1,000+ in ML/AI), turnaround/restructuring, and operations transformation. Expanded through acquisitions of Mackinac Partners, ToneyKorf, OperationsRx, ABACI, and more (Umbrex, Wikipedia).
• Bain Capability Network (BCN): 2,000+ consultants globally (⅓ of Bain’s PE business). Has worked on 50%+ of $500M+ buyouts since 2000, leveraging proprietary tools like DealEdge and OPEXEngine (Bain & Company).
• Big 4 PE practices: PwC works with 1,100+ portfolio companies annually and all top-25 PE firms; Deloitte supports 60%+ of the Forbes 225 largest private companies (Deloitte).
• BluWave: A marketplace platform connecting 500+ PE firms with vetted service providers across 100+ categories. PE firms use it free; service providers pay access fees (BluWave, LinkedIn).

Economics favor partners.

• Due diligence projects: $50K–500K
• Value creation: $100K–2M+
• Strategy development: $150K–750K
• Operational assessments: $75K–400K
• Retainers: $25K–150K/month
• Fractional execs: $200–1,000/hour (30–40% savings vs. full-time hires) (Growth Equity Interview Guide, ECA Partners, Fdcapital).

For a $2B AUM fund with variable deal flow, partner models can cut costs 30–60% versus internal teams (Amazon).

But drawbacks include:

• No proprietary advantage—competitors can hire the same firms (JTC).
• Conflicts of interest—external advisors often serve rival PE firms simultaneously.
• Slower integration—external consultants can’t embed deeply in deal processes (Nexus IT Group).
• Knowledge loss—institutional learning leaves when projects end.
• LP skepticism—some investors see partner reliance as a lack of commitment (Egon Zehnder).

Still, for firms under $5B AUM or with lumpy deal flow, partnering offers unmatched flexibility.

When the Partner Model Makes Strategic Sense

The partner model works best in contexts where flexibility outweighs permanence:

• Mid- and lower-market funds (<$5B) that can’t afford $20M+ internal ops teams.
• Firms with inconsistent deal flow needing scalable support.
• Funds prioritizing speed in specialized areas (e.g., AI, cybersecurity, pricing analytics) where boutique expertise matters more than institutional build-out.
• Younger firms still proving track records, where permanent ops investment risks overextension.

However, LPs increasingly demand transparency. Firms relying heavily on external partners must clearly document outcomes, integration processes, and reasons for this approach. Done right, partner models offer agility and cost savings; done poorly, they signal weakness to both LPs and management teams.

When the Partner Model Makes Strategic and Economic Sense

The partner model fits specific firm sizes and strategies where flexibility outweighs fixed investment.

• Small funds (<$500M AUM): Should rely heavily on partners. With only ~$10M in annual management fees, even a $2–5M internal ops team creates a 0.4–1% AUM drag. Best approach: fractional executives via BluWave, project-based engagements with the Big 4, and a curated retainer network of 5–10 domain specialists.
• Mid-size funds ($500M–$3B AUM): Hybrid is typical—2–4 internal operating partners ($1–3M annually) for core oversight, supplemented by external specialists. McKinsey found “minimal correlation between fund size, AUM, and size of operating team”, highlighting the variety of approaches.
• Large funds ($3–10B AUM): Can support 5–15 ops professionals ($3–10M annually), using external partners for highly specialized needs like AI or cross-border expansion.
• Mega-funds ($10B+ AUM): Run predominantly internal teams (e.g., KKR’s Capstone with 100+ professionals) but still leverage partners for niche expertise.

Other factors reinforce the case for partnerships:

• Sector generalists can’t maintain depth across 10+ industries; partners provide targeted specialists.
• Low deal flow (<5 deals annually): Internal teams become uneconomical, with per-deal overhead exceeding $1M.
• Geographically dispersed portfolios: Firms with APAC/EMEA exposure gain local expertise more efficiently via partners.
• Emerging needs (AI, ESG, regulatory): Too fast-moving to staff internally (JTC).
• Early-stage firms: Limited track record to attract top operating talent; partnerships help prove operational credibility to LPs until scale supports a build.

Comparative Economics: Break-Even by Fund Size

The economics shift sharply by AUM and deal flow.

• $500M AUM: ~$10M in fees. A 2–3 person ops team costs $1–2M (10–20% of total fees). Per-deal overhead = $300K–700K, far higher than external partnerships at $100K–300K per deal. Optimal: partner-only. (Sourcescrub)
• $2B AUM: ~$40M in fees. Supporting 5–7 ops professionals costs $3–5M (7.5–12.5%). Per-deal cost = $250K–625K. Hybrid model works best: 2–3 internal ops + $1–3M in external spend, totaling ~0.25–0.70% of AUM.
• $5B AUM: ~$100M in fees. An 8–12 person team costs $5–10M (5–10%). With 15–25 deals over 3–4 years, per-deal cost = $200K–400K. External spend at this frequency exceeds internal costs, tipping in favor of building.
• $10B+ AUM: $200M+ in fees. Teams of 12–15+ ops professionals cost $8–15M (4–7.5%). With 30+ deals and 50–100+ portfolio companies, per-deal ops costs fall to $250K–500K—cheaper than consultants and providing LP credibility. Every top-25 firm uses this model (Umbrex, Wall Street Oasis).

Other break-even considerations:

• Deal flow utilization: Each operating partner can handle ~3–5 major initiatives or 5–10 steady-state portfolio companies. Teams below 8–12 platform deals annually risk underutilization.
• Time value of money: Building takes 18–36 months. For smaller funds, paying $300K–500K for external projects is preferable. For mega-funds, the delay is quickly offset by lower per-deal costs and compounding institutional knowledge.
• Hidden costs: Internal = recruiting ($50–100K per hire), methodology build ($5–10M), tech platforms, overhead. External = onboarding inefficiencies, knowledge loss, potential conflicts.

The crossover point where building beats partnering: ~$4–6B AUM with 10+ deals annually. Below this, fixed costs rarely justify the spend.

The Hidden Costs and Common Mistakes That Destroy Value

Building operating capabilities can backfire if firms overlook execution challenges.

• Talent acquisition mistakes:
  • Underestimating difficulty recruiting top operating talent in a competitive market (PwC).
  • Hiring ex-CEOs who resist advisory roles, generalists instead of sector specialists, or executives without PE experience.
  • Weak reference-checking—ignoring whether candidates can influence without authority or tolerate ambiguity.
• Mis-sizing teams:
  • Too big: unsustainable costs, idle capacity, LP pushback on allocations, SEC scrutiny over portfolio chargebacks (2014 precedent).
  • Too small: spread too thin, no critical mass for functional depth or institutional tools. The minimum viable size: 30–40 generalists or 10–15 focused specialists.
• Cultural integration failures:
  • Deal teams treat ops partners as “second-class,” bringing them in post-close, creating turf wars and silos.
  • Fix requires formal governance: IC seats, shared compensation, joint value creation plans, co-location, and 360 reviews (McKinsey).
• Post-merger integration failures:
  • Research from Singulier at IPEM Cannes 2025 highlights errors: weak integration systems, absent C-level sponsors, overwhelmed platform management, and high CEO turnover (73% during PE ownership).
  • Success requires modular playbooks, dedicated SWAT teams, mirrored teams, and intentional collaboration.
• Over-focus on cost-cutting:
  • Firms stuck in the 1980s LBO mindset over-index on cost reduction. PwC warns: “Firms get bogged down in cost management… and miss bigger-picture opportunities.”
  • Data proves revenue drives returns: companies with 20%+ revenue growth generate 3.0x+ MOIC, while margin expansion alone lags.
  • Modern balance: 20% efficiency, 50%+ revenue growth initiatives, 30% organizational effectiveness.

Hybrid Models: The Pragmatic Solution for Most Firms

Evidence suggests hybrid models—small internal teams paired with curated external partnerships—are optimal for most PE firms outside of mega-fund or emerging-manager extremes.

• Core-and-flex: Maintain 3–8 internal generalists for oversight, portfolio monitoring, project management, and integration with deal teams. Supplement with:
  • Functional specialists (procurement, pricing, digital).
  • Sector experts for deep domain knowledge.
  • Fractional executives embedded in portfolio companies.
  • Technical experts for emerging fields (AI, cybersecurity).
  • Geographic specialists for international expansion.
• Cost balance: Internal = $1.5–4M annually. External = $1–5M (scales with deal flow). For a $2–4B fund, total spend of $2.5–9M equals 0.15–0.45% of AUM—sustainable and scalable.
• Functional split:
  • Build internally: constant-use capabilities (value creation planning, portfolio monitoring), core strategy-specific skills (sector specialists), and differentiating talent (proprietary methodologies).
  • Partner externally: intermittent specialties (carve-outs, ESG), rapidly evolving domains (AI), and international/local expertise.
• Governance: Clear decision rights on internal vs external deployment, IC integration, preferred provider vetting, and knowledge capture systems.
• Examples:
  • KKR Capstone: 100-person internal team plus Senior/Industry Advisors.
  • Apollo APPS: 35-person internal core, partners for AI.
  • Carlyle: Small core + 27–50 Operating Executives and Advisors on retainer.
  • EQT: 600+ Industrial Advisors globally, supplementing lean internal staff.
• Evolution path for emerging managers:
  • Phase 1: Partner-heavy (BluWave, Bain, McKinsey), 1–2 operating principals.
  • Phase 2: 5–10 internal ops + selective partnerships.
  • Phase 3: 15–30 internal professionals + external specialists, possibly acquiring boutique capabilities.

This progression allows scaling without overcommitting capital too early.

LP Perspective and Fundraising Implications

Limited partners have become sophisticated evaluators of GP operational capabilities, tying them directly to fundraising outcomes.

• What LPs prioritize:
  • Edelman Smithfield 2023 survey: 40–46% say reputation > returns when allocating capital. Reputation is now synonymous with demonstrable operational strength.
  • McKinsey 2025 survey: DPI ranked 2.5x higher than before, as LPs want cash distributions, not paper returns.
  • GlobeNewswire: 81% of PE executives report hold periods extended 3+ years, making operating execution critical to liquidity.
• LP type differences:
  • Pension/SWFs: Prefer large internal teams with institutional processes, defensive capabilities, and global reach.
  • Endowments/foundations: Accept hybrids if supported by track record, emphasizing innovation and ESG integration.
  • Family offices: Most variable—some demand white-glove ops, others resist overhead costs.
  • Fund of funds: Most rigorous—scoring and benchmarking operating models, demanding quantified evidence.
• Best practices for fundraising decks:
  • Dedicated ops section (5–10 slides) with team bios, methodologies, and quantified impact.
  • Case studies: EBITDA uplift, revenue CAGR, exit multiples vs benchmarks.
  • Clear comp alignment (carry participation, performance bonuses).
  • Testimonials from portfolio CEOs and management teams.
• Red flags:
  • Build model: Too few professionals for fund size, siloed structure, no case studies.
  • Partner model: Over-reliance on consultants, “phantom” advisors used for marketing only, lack of methodology.
• Fee scrutiny: Since the SEC’s 2014 review of operating partner fees, LPs demand transparency: who pays (GP vs portfolio), value delivered, and alignment via success-based compensation.

Strategic Recommendations by Fund Segment

Mega-Funds ($15B+ Flagships, $100B+ AUM):

• Must fully build internal teams (50–100+ professionals). Cost = $65–140M annually (10–15% of fees).
• Tactical guidance: global coverage (NA, EU, APAC), functional centers of excellence (digital, procurement), proprietary playbooks (Vista’s VCG, KKR’s 100-day plans), selective external niche partnerships.

Upper Middle Market ($5–15B Flagships):

• Build focused 30–75 person teams, ~20–25% of fees.
• Tactical: sector focus or functional focus (not both), hybrid external partnerships for gaps, and LP communication on specialization.

Middle Market ($1–5B Funds):

• Optimal = hybrid with 10–30 professionals + external platforms (BluWave, Accordion, Big 4).
• Internal team = coordinators/project managers. Partners = execution specialists.
• Messaging: capital efficiency and comprehensive access without heavy fixed cost.

Lower Middle Market (<$1B Funds):

• Pure partner model is unavoidable—internal builds consume 50%+ of fees.
• Tactics: 1–2 operating principals for oversight, curated advisor network (10–15), project-based engagements via BluWave/Big 4, and co-investment models aligning external experts with outcomes.

Emerging Managers (Fund I–II):

• Start with partner model, evolve toward hybrid as AUM grows.
• Articulate phased plan to LPs: Funds I–II = external partners, Funds III–IV = small team, Fund V+ = scaled hybrid.
• Document playbooks and track measurable outcomes from early external engagements to build credibility for future hiring.

The Decision Framework: Build, Buy, or Partner

The optimal model depends on nine core dimensions:

1. Speed: Buy/partner = immediate; build = 18–36 months.
2. Scale: < $1B = partner; $1–5B = hybrid; $5–15B = focused build; $15B+ = full build.
3. Differentiation: Build if ops = core competitive edge.
4. Deal Flow: ≥ 15 deals annually = build; < 8 = partner.
5. Sector: Specialists = build; diversified = partner; focused generalists = hybrid.
6. Talent Market: Build if able to recruit elite ops talent; partner if not.
7. LP Expectations: Match or exceed peer group’s operating model.
8. Tech Needs: Build for core systems; partner for rapidly evolving areas (AI, quantum).
9. Geography: Global = build ($50B+ AUM). Regional = hybrid. Local = partner.

Decision tree:

• <$1B = partner.
• $1–5B = hybrid.
• $5–15B = focused build.
• $15B+ = full build.

Adjust up/down one level for deal flow, strategy, LP expectations, or talent access.

Conclusion: Making the Choice That Defines the Next Decade

The build, buy, or partner decision is existential for PE firms.

• Pure models are extinct outside extremes (<$500M = partner-only, $15B+ = full build). Most firms live in hybrid territory.
• Build delivers compounding edge (Vista’s 15-year VCG, KKR Capstone evolution) but demands patient scale and $500M+ cumulative investment.
• Partner provides flexibility but risks commoditization—firms must integrate and measure outcomes to prove credibility.
• Buy remains rare for PE firms due to culture and economics, with consulting firms leading this model instead.
• Timing matters: Apollo’s late launch of APPS shows the 10–15 year maturity lag; delays today mean permanent disadvantage.

Strategic takeaway:

• Mega-funds: Build.
• Upper MM: Build focused.
• Middle market: Hybrid.
• Lower MM/Emerging: Partner now, hybrid later.

The firms that right-size operating models today will capture the extra 2–3% IRR edge tomorrow. Those that don’t will fall into mediocrity—or obsolescence.

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