How to Accelerate Management Team Performance Post-Transaction

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Insights from the PEI Operating Partners Forum New York 2021

We have never seen a more exciting, almost frenetic, time in private equity. We’re seeing unprecedented numbers of deals, shorter lead times on closings, partners having to complete due diligence sometimes without having met the management team, and all of this while navigating a talent shortage at all levels of organizations.

In today’s environment, talent assessment is important, but it’s no longer enough. Investors are looking for more impactful strategies on how to support, prop up, and boost the performance of the management team in a way that helps them execute against the value creation plan.

I recently hosted a panel discussion at the Private Equity International 2021 Operating Partners Forum in New York, with a talented set of panelists that included Bala Ganesan, Managing Director, Special Situations, Oaktree Capital Management; Marco Mendes, Head of Portfolio Support Group, North America, Advent International; and Glenn Stevens, Partner, Talent Management, Apollo Global Management. They all have great perspectives on how to build and nurture a better-performing portco management team.

We started the conversation by talking through the challenges and disconnects that are happening right now with portco management teams. For instance, a majority of  investors (90%) of investors think the quality of the management team is the most important nonfinancial factor when evaluating an IPO. And when the management team is aligned, there is a 1.9x greater likelihood of above average financial performance.

We also discussed what investors look for from their management teams in the early days after the transaction, how to avoid disconnects with the management team, how to build better relationships and alignment between the management team and the board, and more.

Let’s take a closer look at some of the key highlights from our discussion:

First 90-100 Days: Critical Activities

Within the first 90 to 100 days after the transaction, it’s important to build strong relationships with the management team. Marco Mendes, Head of Portfolio Support Group, North America, Advent International, said that his firm takes an approach that’s based on partnership, relationship-building, and full immersion in the portco’s business.

“The number one thing that we do is actually spend a lot of time with management team,” Marco said. “[It is] basically an intensive, week-long exercise where we have informal meetings with every senior manager.”

There is s not always a playbook for every situation with a newly acquired portfolio company. Marco said that his firm takes an approach of using playbooks for functional topics like pricing and procurement, but the value creation plans (VCPs) are always bespoke depending on the company’s challenges and goals.

How to Align Goals and Priorities with the Management Team

If management teams have bought in to the strategy, how can investors do more to help get them aligned?  Bala Ganesan, Managing Director, Special Situations, Oaktree Capital Management, said: start early.

“Even in the diligence process, you want to start testing your investment pieces with the management team, if you feel like management team is going to carry on all the onus,” Bala said.

It’s crucially important for management teams to be aligned with the investors’ objectives for the company at the highest level. If the investors want to start by focusing on cutting costs, and the CEO wants to focus on growing revenues, that disconnect can cause the larger value creation plan to fall apart.

Get Specific and Create Structure

Another action to take when creating alignment with the management team is: ask the managers for specifics and build structure around their plans and goals. Glenn Stevens, Partner, Talent Management, Apollo Global Management, said that his firm likes to have a highly structured process during their underwriting.

Ask your management team to force rank their top four or five priorities, in order of importance, with specific capabilities identified to meet the investment pieces. For example, if your management team says they’re going to create $250 million through international expansion, $100 million through SG&A cost data, and $50 million through digitalization of marketing, Glenn said that investors should ask, “Has anybody on the management team ever done international expansion? Has the CFO ever done the SG&A cost leak out program?”

“It’s identifying capability, and actually making sure that you’re shoring up the folks with the capabilities to meet the investment pieces,” Glenn said. “That has to be done very early on.”

Watch Out for Red Flags

When a management team is not aligned, sometimes it becomes apparent in unexpected ways. Our panel had some great insights on how to recognize the red flags of a misaligned management team.

  • Defensiveness about online reviews: “I always get extremely concerned when people are defensive about, for instance, the organizational service, employee service, or about things like Glassdoor reviews,” Marco Mendes said.
  • Resistance to organizational assessments: “Once or twice a year, we want to have a full organizational assessment from the employees, and when people are resistant about that, it brings clear red flags into my mind,” Marco said.
  • Lack of transparency: “The canary in the coal mine’s often the lack of transparency,” Glenn Stevens said. “And folks stop being collaborative, and don’t want input from the deal teams. Look, we’re not heavy-handed. We do weekly phone calls, and we’ll have monthly reporting and quarterly reporting. We’re not really very heavy-handed, but when they start to bristle at even that, you know that something’s wrong.”

As the private equity deal landscape continues to heat up, it’s going to become even more important for investors to build strong relationships with their management teams, enhance the effectiveness of their teams, and get the teams aligned around strategy in a cohesive, consistent way. Our expert panelists shared great insights and I want to thank them all for participating.