Over this three-part series we aim to provide our insights into the journey of a private equity owned investment from the signing of a control transaction and until the eventual exit to a new owner.
From a Potentia perspective, we see the journey of our investments forming into three distinct phases:
The final stages of a sale transaction are generally stressful and time-consuming. Legal documents are going back and forth, advisors are trying to keep all parties coordinated, and the management team is running the business while keeping across the transaction. All-in-all, the closing day is one of relief and celebration.
The moment to decompress can seem somewhat short-lived for the management team. The first board meeting is likely only a few weeks away, and the first 100-days are a crucial time from a private equity (“PE”) investor’s perspective.
Interaction between the new PE investor and management is most concentrated in these early months when the new board is established, reporting and governance frameworks are agreed to, the business plan is finalised, and strategic initiatives are kicked off.
All of the above takes time, and some (or all) of this may be a relatively new experience for the management team. This intense period can, at times, feel disconcerting given the additional pressures to deal with on top of running the business. However, if the right time and effort are spent upfront, this pays off in spades for the management team as it inevitably facilitates greater autonomy to run the day to day operations as well as ensuring the appropriate level of resources are committed to critical, strategic initiatives.
At Potentia, one of our Operating Partners will assist management with creating the business plan. We find that building this plan together provides us with greater clarity on areas that Potentia can add value along the way. We strive to be a business partner and like to back bold strategies, which we can do when we understand the business through management’s eyes and have strong alignment.
An essential requirement of most PE investors is transparency and analytical rigour. Understanding the expectations of the new board and aiming for ‘no surprises’ is crucial. Board meetings will have structured agendas, discussion materials and detailed financial and operational reporting. This can be somewhat different from family or founder-owned businesses where the management team has sometimes relied on intuition and experience built over the years (or even decades).
At Potentia, we have regular monthly board meetings with all of our portfolio companies. This cadence helps us remain close and focused on the essential issues while giving management time to run the business. We do like to spend more time on strategic initiatives where we can provide insights, which includes things like product pricing and innovation, brand positioning, sales-force effectiveness and customer lifetime value.
As the first 100-days draws to an end, the ideal scenario for everyone is; (i) a well-aligned Board with an agreed reporting and governance framework, (ii) a clear business plan that all parties are genuinely excited about pursuing, and (iii) a management team that has a clear direction on where the business needs to go in the near term, and a vision for a great business in the long term.