In today’s accelerated private equity environment, the urgency for the PE deal team to begin creating value and delivering results in line with the investment thesis begins on day one. That said, few fund sponsors have a defined process for identifying and addressing the leadership requirements that could undermine the value creation trajectory. The more time it takes to identify the management and organizational fault lines, the more difficult to correct, and the more significant the ramifications. For this reason, a post-close talent playbook is critical. Only by creating and then adhering to a structured assessment blueprint can the PE firm learn where changes are needed to ensure alignment with investment goals.
This six-month blueprint should comprise the following components:
1. Establish trust before day 1
Trust is a vital component of any successful relationship, even more so between the PE firm and its new portfolio company. It’s important to set expectations and prepare the leadership team for what is to come before the transaction is closed. Ensure the management understands that evaluating current capabilities is an important part of the value creation formula. Position yourself and your partners as resources capable of identifying opportunities to build greater strength in leadership, team performance and organization effectiveness.
Once a foundation of trust is established, the next steps in post-transaction playbook address common sources of risk related to misalignment around key priorities, talent that cannot scale to drive expected growth, and bottlenecked decision making that stalls speed and execution that are not easily detected during the initial due diligence process.
2. Clearly define success
Within the first 30 days, facilitate a strategy development and alignment session with the management team to ensure there exists a clear understanding of priorities and the plan for the business. Identify the capabilities that will be required now and in the future to deliver on the business priorities. Openly address and resolve any inconsistencies and conflicting points of view. The session will be critical in both articulating expectations and helpful for identifying leadership team members who may not be on board.
3. Assess key leadership talent
Within the first 90 days, conduct individual assessments of key executives, including the CEO and the top 4-5 players on the team, to determine strengths, gaps and whether they can scale to deliver against the proposed growth goals. At the same time, review and consider the performance of the management team as a whole, examining how they function, debate, tackle tough issues, hold each other accountable and make decisions.
4. Understand the organization’s capacity to execute
During the 60-120 day period, it is critical to gain an understanding of organization’s capabilities beyond the top management team. Work with management to create an organization scorecard that breaks the agreed-upon strategic plan into a tangible deliverable and required capabilities. Conduct an objective audit on critical areas such as organization structure, culture, decision-making, performance management and accountability. Identify strengths and gaps against the scorecard.
5. Pull it together
By month six, you should have coalesced all the insights into a concrete action plan that can be executed quickly. Achieve agreement with the CEO on a game plan that will develop and improve both key individual leaders and the collective executive team’s performance while also identifying the areas where investments will be required to accelerate needed change. The plan should clearly articulate any forthcoming changes to the executive team, operating model or organization design, while clarifying roles and accountabilities.
6. Make it so
With your assessment complete and your action plan in hand, it’s time to execute. Speed is critical to ensuring that the organization can gain traction and deliver on expected financial performance. Most organizations expect some change soon after a new PE partner takes stage, so it is important to not miss the window. Pull the trigger on the tough decisions quickly and confidently, keeping in mind that the longer you wait, the deeper the problem may become, putting your investment thesis at risk.
When proactively discussed and planned early in partnership with management teams, PE deal partners can objectively and proactively determine the right leadership and organization roadmap to deliver on their expected value creation plans.