This is one of seven features of the private equity integration and value creation guidebook. Download the entire guidebook here.
Operational improvements are a key lever for achieving value creation after a deal closes. There are three critical ways private equity firms can both protect and grow value through operations.
1. Lead differentlyThe due diligence process can be highly distracting to the target company. It’s easy to stop focusing on day-to-day operations, resulting in customer complaints, apprehensive employees, and lost revenue. During times of turmoil, an organization’s poor performers tend to stay, and the high performers leave to pursue other opportunities. Don’t let that happen. Identify and retain high-performing employees. When leaders understand and address their team’s natural concerns about the acquisition, they can prevent value erosion in the early days following an acquisition. Assign an integration team to prepare leadership for managing the organization through the transition and to ensure that core revenue-generating processes such as sales, order fulfillment, and billing are working seamlessly. The integration team can also support leadership as they adjust to new expectations from the acquiring company.
2. Optimize for the futurePlans for the critical first 100 days are best divided into weekly and monthly time frames. Early on in the process, focus on quick wins that take minimal effort. These can be used to build momentum for the transition. Activities likely to yield the greatest benefit, but that may take slightly longer, are a good focus for the first 100 days. One important caveat: Many companies tend to jump to people or technology issues and ignore flawed business processes in the belief that they will take care of themselves. In reality, optimized business processes should be driving the other two. Establish which processes will optimize results and then determine the people and technology that are needed to support those processes.
3. Measure for success
Translate the business case components used to justify the acquisition into tactical success measures. This will ensure that the team is focused on the critical activities that drive value creation. Key performance indicators (KPIs) such as increased sales or reduction in inventory can be used to both measure and communicate the success of the integration effort. However, often these metrics are lagging indicators that signal what has already been achieved. You also need to select a handful of leading indicators — KPIs such as proposals issues or on-time deliveries — that measure the behaviors that are directly linked to success.
Assign an integration team to prepare leadership for managing the organization through the transition.
Developing a planPrivate equity firms should set specific goals for each of the first three months post-close. Goals should include completing activities that will achieve opportunities for improvement identified during due diligence. Without a measurable plan that includes specific goals, it's far less likely that desired benefits and return on investment will be achieved.
First 100-day plan
- 30 days: Set expectations. Inform leadership of the overall value creation plan and set short- and long-term expectations.
- 60 days: Execute. Execute prioritized actions aligned with the value creation plan.
- 90 days: Adjust. Assess initial results of integration and adjust plans and actions as needed.