There are a number of commonalities that will be faced by the CEOs of private equity-backed businesses, regardless of the sector they’re in or their plans for an exit.
Our PE CEOs are confronted by similar challenges time and again, from how to motivate and incentivise a senior leadership team, to managing stakeholders and courting would-be buyers.
Here are some top tips on how to overcome such barriers.
Know your investor: With the current shortage in good quality investment opportunities, you are likely to get more attention from private equity houses. However, do your own due diligence and take your time before you progress as it’s easy to be flattered by their interest. Make sure you know exactly what comes with the investment, where the fund it in its cycle and what will be expected of you.
Utilise non-executive directors: Take the opportunity to bring in additional, impartial and alternative skills in the form of NEDs. Assess where you want your business to be in two years’ time and hire NEDs on that basis – your decision making as a PE CEO will definitely become easier with the right NEDs in place.
Build a great team: Don’t succumb to the CEO’s disease of trying to do it all. Recruit and appoint people around you who you trust and then empower them to make decisions. To really succeed at building a great leadership team you should always be thinking about succession and the bench strength within the organisation.
Change is unsettling: An exit may be the realisation of a dream for you and your senior management team, but it can also be destabilising for the rest of the organisation. Understand how to incentivise employees who are not going to be rewarded when the sale comes around. Remember, it’s your team who deliver your growth plans so take care of them. Also be aware of how an exit will affect people in different ways and how you may need to have some frank and honest conversations.
You don’t fully own the business: It might sound ridiculous, but some management teams only fully appreciate the reality of the change of ownership that private equity investment creates when things start going awry. Make no mistake, the countdown for generating a return starts on day one.
Create time and space: This is arguably the biggest challenge for any private equity CEO. It is, however, vital to make the effort to step out of these day-to-day responsibilities so you can reflect on the business and what needs to be done to deliver a successful exit. You will be expected to be an ambassador for your business externally at the same time as remaining the leader your team have grown to know.
Scout the market for suitors: Don’t be shy when it comes to meeting potential buyers, whether its trade or a new investor. No doubt you already have a preferred exit route but keep your options open as we all know how quickly market conditions can change. Fundamentally, prepare your business for a sale so that when the right offer comes along you are ready to move.
Know when to step away: The executive team of a private equity-backed business must plan ahead for the time when they will not be there. Good succession planning at both executive and senior leadership levels show that you’re thinking long term about the business. This is also something that stakeholders increasingly want to see.
With so much at stake, and so many obstacles and challenges to overcome, the value of talking to individuals and leaders who have been through the process of leading a private equity-backed business to exit cannot be overstated. Having access to people who have experience in the process, and building relationships with them, is invaluable and can reduce uncertainty about how to achieve a successful sale.
So while an element of luck certainly plays a part in any successful private equity investment and exit strategy, there is a lot of be said for putting the odds in your favour with just a few careful considerations.
By James Boot, Senior Relationship Manager, Criticaleye