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"Taking management to the next level: Current and future directions in the assessment of management teams by private equity firms".
Mike Hicks.
December 2004
"Get ready for the private-equity shakeout: Will this be the next shock to the global economy"? Heino Meer Katt & Heinrich Liechtenstein.
December 2008
"Hearts and Minds: The Key to Successful Mergers". www.boozallen.com
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The current economic environment has created
challenges for the private equity, venture
capital and mergers & acquisitions markets. We at Opus Leadership Group recognize these challenges and see opportunities as well. We
believe through understanding and enhancing
leadership capabilities in your portfolio and
target companies you can achieve increased
deal and overall company success. This newsletter
is the first in a series focused on Management
Due Diligence and related topics.
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Assessing Portfolio Leadership in Challenging Times
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In the prevailing economic environment, deals - whether private
equity, venture capital or mergers & acquisitions - have been side lined. The surge in growth and success these
markets have enjoyed for years has been tempered. As
always, though, in challenging times there are opportunities for focus and
growth. While the pace of deals
remains sluggish, there are steps firms and companies can take now to help consolidate
current gains and ensure greater success as deal activity resumes. A recent Boston
Consulting Group research report (December, 2008), recommended that private equity firms
prioritize focusing on operational improvements in their portfolio companies to achieve competitive advantage, increase success and ensure the longevity of their firms. At the core
of making operational improvements is a focus on people, specifically the company's leadership. A proper management
due diligence process ensures the right leadership is in place, aligned with
strategic goals, performing optimally and dramatically reduces costly
leadership selection mistakes.
How well do you know the leadership in your existing and target portfolio companies?
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Increase Deal Accuracy and Improve Returns
While variety exists in the practice of management
due diligence, there are some core elements to the process. Experts trained in the assessment and
development of leaders in the context of deal execution (PE, VC, M&A),
focus on:
1. Understanding the portfolio/target company's investment thesis and investors' expectations and targets
2. Creating a profile of requisite leadership skills for the portfolio/target company's leadership team
3. In-depth assessment of the leadership team benched off these requisite criteria
4. Developing a post-assessment performance scorecard for individual team members and the team as a whole
5. Providing feedback and recommendations to the investing stakeholders on the fit between portfolio/target company leadership and the investing firm's goals for the company, subsequently aligning all key stakeholders on recommendations
Ultimately this process should answer the question:
Can this team lead this company to success?
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| Conduct a Performance Check on Your Leadership Teams
Focus on these questions:
1. How well do you understand
the individual and collective strengths and weaknesses of the portfolio/target
company's leadership team? How can strengths be leveraged and weaknesses be managed or developed?
2. How well aligned is the leadership team with the investment thesis and the strategic and growth goals of the company?
3. How can leadership increase their individual and collective performance and focus more on what's best for the entire company?
4. How can the portfolio/target company culture be developed to align further with mutual goals and to maximize company focus, urgency and outcomes?
5. Is executive leadership in the portfolio/target company clearly defining and frequently reinforcing vision and strategic goals for the company?
6. Which team members are capable of leading the company to success and which ones, if any, are not?
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In the current economy organizations can achieve greater advantage by focusing on their people, specifically leadership, in their portfolio and target companies. Engaging management due diligence as a core part of the deal process, and at various stages of the company's growth, allows the investing company to more closely align with their leadership teams, decreasing costly selection mistakes, ensuring more accurate leadership decisions, improved company performance and greater overall success.
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