When deploying capital, investors want to de-risk their investment as much as is practicable, but assessing portfolio company management teams pre-deal is notoriously challenging. So, what then? In our experience, given the critical role these individuals play in delivering the value creation plan, the first 100 days post-acquisition is the next best solution. Here’s why:
- Risk Mitigation: Data-driven leadership assessments help identify who to retain, develop, or replace, thereby reducing the risk of misaligned leadership and safeguarding the value creation plan.
- Enhancing Relationships: Understanding those responsible for the success or failure of your acquisition (and what makes them ‘tick’) sets the tone for the relationship between investors and management teams, informing behaviour and communications both ways as well as engendering transparency.
- Accelerating Quick Wins: Identifying areas for immediate development within individuals or across the team supports the achievement of early successes, building momentum towards long-term goals.
- Strategic Alignment: Tailored assessments ensure leaders are in alignment with the fund’s long-term goals and the existing value creation plan, thereby increasing the likelihood of achieving sustained success and superior returns.
- Improving Team Dynamics: Insights into team interactions and collaboration foster the development of a cohesive, high-performing leadership team, essential for achieving the plan.
- Ongoing Development: Understanding where key players need coaching and support unlocks their potential in the longer-term, sustaining performance, equipping them with the skills needed to navigate future challenges. It also informs investors and the Chair of the most useful support they can provide.
Here’s how: robust psychometric tools and structured interviews are evidence-based methodologies and by using these to identify gaps in the management team, future hiring decisions can be made in an informed manner. Leadership assessments allow objective evaluation of individual and team capabilities, benchmarking against market standards, avoiding the ‘halo’ or ‘horns’ effect and helping with the perceived ‘fairness’ of difficult decisions.
Investing in leadership assessments within the first 100 days lays strong foundations for success by ensuring investors have the best understanding possible of the management team they have inherited. This can support decisions around the finalisation of the value creation plan (and management incentives), and mitigate the associated risks, driving both immediate and longer-term gains.
As the saying goes: “The best time to plant a tree is 20 years ago. The second-best time is now”.
How well do you know the management in your portfolio companies?