The original deal thesis made sense when you underwrote it. A platform with strong market position, clear operational upside, and a realistic path to a target EBITDA multiple within a five-year hold. Then the world changed. Interest rates rose. Exit markets seized up. And what was supposed to be a clean exit at year five is now year six, year seven, or beyond. This is not a hypothetical. It is the reality facing a significant share of the private equity industry right now.
According to data from Private Equity Info, the median holding period for PE-backed portfolio companies has reached 5.8 years, the longest on record. Cherry Bekaert’s mid-year 2025 analysis shows the median exit hold time peaked at seven years in 2023 and has only modestly declined since. Meanwhile, Ropes & Gray reports average buyout holding periods at 6.4 years in 2025. And PitchBook data shows that over 30% of PE-backed companies have now been held for five years or more, the highest percentage in nearly a decade.
The backlog is staggering. As of mid-2025, an estimated 12,500+ PE-backed companies are sitting on portfolios waiting for exit representing roughly eight to nine years of inventory at recent exit pace, according to Cherry Bekaert.
At NEXT LEVEL Partners, we’ve been working with PE-backed companies since 2003. And in the current environment, the question we hear more and more is this: “We’ve already held this asset for six-plus years. What can Lean transformation actually do for us now?”
The answer is: more than most people expect.
The Late-Hold Dilemma
Most PE value creation plans front-load the heavy lifting. Operational improvement, leadership changes, bolt-on integrations all typically happen in years one through three, when the GP has conviction, the management team has energy, and the story to buyers is still in the future tense. By year five or six, the perception is that the transformation work is “done.” The company is being managed for exit, not for improvement.
But here’s the problem: if exits don’t materialize, and valuations don’t support the deal math, that mindset becomes a trap. A company that stopped improving three years ago is now a company that has been static for three years. Buyers see it. The EBITDA multiple feels increasingly hard to justify.
McKinsey’s analysis of the current PE environment identifies this clearly: with multiple expansion largely unavailable and leverage no longer the driver it once was, EBITDA margin expansion through operational improvement is the primary remaining lever for value creation. As their team notes, sponsors should “pursue continual improvements in ways of working with portfolio companies.”
The implication is significant. Late in the hold period, when EBITDA growth is harder to come by and the investment thesis is under pressure, operational improvement through Lean transformation isn’t a nice-to-have. It’s often the only credible path left to improving the exit multiple.
What Lean Transformation Can Do That Other Levers Cannot
Financial engineering is essentially off the table in today’s rate environment. Add-on M&A is slower and harder to integrate. Top-line growth, generally the preferred lever, is constrained in many industries by market conditions and competitive dynamics. But Lean transformation operates in a different part of the value creation equation: it attacks waste, unlocks capacity, improves quality and lead time, and drives EBITDA in ways that are permanent, verifiable, and fundable in the buyer’s valuation model.
At NEXT LEVEL Partners, we generate results through our Lean Business System that include:
- EBITDA improvements of 15x ROI from VSM (Value Stream Mapping) Kaizens in industrial settings
- 16x ROI in hospitality environments
- 12x ROI in financial services
- Revenue growth at 3x above market rates, sustained over 24 months of continuous profitable top-line organic growth
These aren’t theoretical outcomes. They are results we’ve delivered inside PE-backed companies, across industries, and at various stages of the hold period. Including late in the hold period.
The key insight is this: most manufacturing and industrial businesses, even those that have gone through some degree of prior operational improvement, still carry substantial Lean opportunity. Waste in processes, variability in production, unaddressed value streams, leadership behaviors that haven’t changed are endemic to businesses that haven’t made Lean a true business system. They show up as margin opportunity. And that opportunity doesn’t disappear just because a company has been held for six years.
A Look at What Late-Hold Lean Can Actually Deliver
Consider the general profile of a PE-backed manufacturer at year six of a hold period: original operational improvements captured, management team fatigued, leadership behaviors defaulting back to old habits, and the investment thesis strained by market conditions. The sponsor needs to demonstrate to buyers that there is credible EBITDA upside remaining, and that the business has a management system in place to deliver it.
This is precisely where structured Lean transformation creates asymmetric value. A Needs Assessment Visit (NAV) from NEXT LEVEL Partners can pinpoint operational and leadership gaps quickly. From there, targeted kaizen events, value stream mapping, and daily management system improvements can deliver measurable EBITDA impact on a timeline that matters for exit preparation.
Here are two illustrative examples of what late-hold Lean transformation can look like in practice:
Example 1: Label Printing Company – Three Owners, One Breakthrough
A PE-backed label printing company had already been through two ownership cycles before its current sponsor acquired it at $400M in revenue and 17% EBITDA. Prior owners focused on growth and acquisitions, leaving behind significant operational complexity and limited Lean capability.
NEXT LEVEL Partners was engaged during an extended hold to drive transformation.
Within the first 10 months:
- $5.1M in annualized EBITDA improvement on a $750K investment (6.8x ROI)
- Clear path to $11M+ in EBITDA (12x+ ROI) over 18 months
- Labor, materials, and overhead savings identified well beyond initial expectations
Takeaway: Even in businesses that have changed hands multiple times, meaningful operational value often remains untouched. Lean transformation surfaces opportunities that financial engineering alone cannot.
Read the full case study to see where the biggest gains were unlocked.
Example 2: Medical Device Manufacturer – Reversing a Profit Decline Late in the Hold
A $50M medical device manufacturer experienced a $10M profit decline over three years due to market shifts. Rather than accept margin erosion, the sponsor engaged NEXT LEVEL Partners to execute a late-stage operational turnaround.
Working alongside leadership, three strategic paths were developed and pressure-tested. The selected approach—relocating operations while maintaining the go-to-market strategy—was executed with discipline.
The results:
- Profitability restored within one year, aligned with initial Kaizen estimates
- Significant value recovered for the sponsor
- A stronger operational foundation and credible exit story
Takeaway: Even late in the hold period, with pressure on margins, Lean transformation can reset performance and create meaningful value.
Explore the full case study to see how the decision was made and executed.
What the Data from Industry Leaders Confirms
While we’ve experienced a lot of this firsthand, this isn’t just NEXT LEVEL Partners’ perspective. Leading voices across the industry are converging on the same conclusion.
McKinsey, in their analysis of PE value creation, argues that with declining multiples and limited leverage, “buyout managers should invest with operational value creation at the forefront,” and that this focus should continue throughout the deal lifecycle, not just in the first 100 days.
BDO’s 2025 Private Equity Survey found that 63% of funds now report average holding periods exceeding five years, and 84% are experiencing longer holds than they did in 2024. Their conclusion: “fund managers holding onto aging assets should use this time to strengthen operations so their portcos command attention from buyers as markets recover.”
EY’s work on exit value optimization notes that the most successful PE exits tie every value creation initiative to traceable EBITDA impact, and that the operating partner’s credibility in demonstrating that improvement story is central to commanding a premium valuation.
The consistent message: operational improvement isn’t a year-one activity. It’s a continuous discipline that creates compounding value, and that value is never more important than when a sponsor is trying to justify an exit multiple after a six-plus-year hold.
The NEXT LEVEL Approach for Late-Hold Assets
When we engage with a PE-backed company late in its hold period, we approach it differently than a day-one engagement. The urgency is higher. The timeline to exit is shorter. And the question we have to answer quickly is: where is the largest EBITDA opportunity, and how fast can we capture it?
Our process begins with a rapid, on-site diagnostic that identifies the gap between current performance and what Lean best practices make possible. We’ve found, consistently, that even companies that have been through prior improvement cycles have meaningful untapped opportunity. It shows up in production variability, in quality costs, in lead time performance, in the management behaviors that drive daily decision-making.
From this visit, we build a monetized improvement roadmap. Not a consulting deck… a practical plan with specific kaizen events, value stream improvements, and leadership capability building tied to quantified EBITDA impact. We then execute alongside the management team, on-site, until the results are in the numbers.
The output is what a sponsor needs heading into an exit process: a credible operational improvement story, demonstrated through actual EBITDA improvement, with a management system in place to sustain the gains.
The Bottom Line
The PE exit environment is not going to normalize overnight. Average hold periods at or above six years appear likely to persist for the foreseeable future. Sponsors who are waiting for markets to reopen rather than building operational value in the meantime are taking a significant risk.
Lean transformation, executed with the right urgency and expertise, is one of the most powerful value creation tools available to PE firms holding assets late in the hold period. It generates real, permanent EBITDA improvement. It builds the operational story buyers want to see. And it creates compounding value that financial engineering simply cannot replicate.
If you’re holding a portfolio company at year five, six, or beyond and the original deal thesis is under pressure, the question isn’t whether Lean transformation can help. The question is how much opportunity you’re leaving on the table by waiting.
Want to explore what’s possible for your aging portfolio assets? Let’s talk.
