The Private Equity Journey – a Potentia perspective (Part 2)

My last blog discussed closing a sale transaction and establishing a strong foundation in the first 100-days of private equity ownership. The next step in the Potentia investment journey is to execute a business plan (“the Business Plan”) that aligns the company’s vision with Potentia’s investment thesis.

A foundation for creating alignment between the company and Potentia is the CEO and Chairperson relationship. Having an open and regular feedback loop (i) helps ensure that the CEO has clear direction from the board, (ii) provides an opportunity to gain constructive feedback, and (iii) allows the CEO and Chairperson to engage in discussion in a less formal setting than a board meeting.

Part of the first 100-days at Potentia involves establishing the board meeting cadence and framework. We conduct monthly board meetings to review financial and operating metrics, value-creation initiative progress, and other strategic matters that require either some form of guidance, discussion, or decision to be made. The board generally comprises the company’s founders and members of the Potentia team who ran the original diligence process and who have ongoing investment responsibility.

The Potentia team aims to be prepared for all board meetings and will have read all board materials. While we will have questions, we join each session with an open perspective on all issues or initiatives. We find that this approach allows management and ourselves to rigorously discuss, debate, and challenge all decisions we are making.

We find that annual budget reviews are an opportune time to assess where the business is relative to the Business Plan. During these sessions, we often determine that Potentia’s network of operating partners or outside advisors can be brought into the business to assist management with any major initiatives.

These initiatives vary between businesses, but we generally find ourselves working with management to consider product innovation, product bundling and pricing, salesforce effectiveness, or organisation restructuring to streamline decision-making or processes. Ultimately, we look at these initiatives in conjunction with the Business Plan.

Another part of a Business Plan may be an expansion into other markets or verticals through acquisitions. We understand that acquisitions can represent a major distraction for a business, as well as an opportunity to gain additional market presence or capability. Potentia’s team assists our portfolio investments through the entire process and also has a direct sourcing team that identifies and nurtures relationships with founders and leaders of potential acquisitions.

The pace and timing that a company achieves the Business Plan can vary due to a myriad of factors. Through the board, we test whether the business is in a place to consider an exit event to a new capital partner, strategic investor, or into a public company listed environment. We will discuss that process in more depth in Part 3.

Brett Owen,
Potentia