Private Equity

A “Great” Value Creation Plan: Execution Imperatives & Tactics

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Four Imperatives to Execution & Seven Tactics to ROI

Alexander Group’s private equity community recently gathered to share insights on value creation plan (VCP) execution. The conversation centered around what makes PE firms “great” at engaging management teams and mobilizing efforts to bring the deal thesis to life.

The group agreed they typically encounter some form of resistance among management teams. Maybe the management team is stuck in legacy ways of thinking, or they have been through this process before, and ownership was overbearing. In any case, deal and operating teams must anticipate push-back. They should hit the first 90 days hard. This is a critical time to engage and win over the management team.

The team offered four imperatives to being great at value creation plan execution – lead with data; make quick and decisive talent decisions; ensure the CEO sets the tone; and establish ownership.

Four Imperatives to Great Value Creation Plan Execution

Lead with Data
The management team knows their business better than ownership―that’s probably one of the main reasons for the investment. Convincing management to think and act differently is more successful when deal and operating teams come to the table with proof points. Bring forward analysis and modeling from diligence to serve as a foundation for the VCP discussion. Drive the point home with offering proof points from the portfolio. Share case examples and references that demonstrate that the desired results are more than possible. Portfolio illustrations have the added benefit of creating healthy competition among management teams.
Make Quick and Decisive Talent Decisions
At the tail end of diligence or during the first 90 days, evaluate leadership (formally if possible) with the value creation plan in mind. Identify gaps and determine if the current team can cross the chasm. If not, make quick leadership changes.
Keep in mind talent needs are not limited to leadership. Often times, value creation initiatives require investment at the individual contributor level. For example, a value creation plan might involve a pricing play. While it may be (relatively) straightforward to size the prize and develop the strategy, executing the play is far more complex. The initiative may fall flat if sellers lack the skills to communicate, justify and sell price increases. Investments are often needed to make sure the organization has the competencies to effectively execute VCP initiatives.
The CEO Sets the Tone
Senior leadership must buy-in and drive the value creation culture from the top. Energy and attention will likely be at its peak in the first 90 days post-close. During this time, partner with the CEO to evangelize the VCP vision. Promote a culture of value creation within the organization. Assign accountability for initiative execution to keys stakeholders. Ensure these teams are funded and enabled for success.
The Company Needs to Own It
PE firms must get scale from their advisors, specialists and other operational resources. While it may be important to help management think through change, the PE firm should not execute on behalf of the company. Collaborate with VCP initiative owners and stakeholders early on. Forge relationships. Operate “2 in a box” for the first 90-120 days.

Additionally, the group also shared seven winning tactics to make certain the plan produces the intended returns.

Seven Tactics to VCP ROI

Tap the Bankers
An enormous amount of energy and resource is spent during most diligence exercises. There are many sponsors evaluating an investment from various angles. No one has a better bird’s eye view than the bankers. Post-close, ask the bankers to summarize key learnings and messages (across all bidders) that landed well with the management team. Leverage these insights to fine tune your VCP so that it resonates with management.
Conduct Strategic Planning Sessions
In the late stages, the purchase process often comes down to which sponsor the management team wants to work with. Being aligned on vision and engaging the team on a 3–5-year strategy can be the difference between winning and losing. Conduct a mini (2-3 hour) strategic planning session with management in the last month of diligence. Gauge their thinking, sell in the firm’s vision for value creation. Post-close, leverage outputs to enable a more formal multi-day offsite to finalize the long-range plan.
Operate a Structured, Codified Onboarding Process
First impressions last forever. Ownership’s credibility and support for the VCP is on the line in the first 90 days. PE firms must come to the table with a well-defined plan to bring the company into the portfolio. They should conduct a deep dive validating diligence findings, learning the business, to fine tune the VCP. The serves as an opportunity to develop relationships, gain trust and sell management on the vision of value creation.
Co-create VCPs with Management
The onboarding process serves as the vehicle for management to take ownership of the VCP. Come to onboarding with a strawman plan, but let management get their hands on it. Explain the deal thesis to the team and help them see how each component of the plan is foundational to achieving the exit goals.
Roll-up Your Sleeves
While it is important to get scale from resources, the PE firms needs credibility to get buy-in. There is no better way to earn management’s trust then to shoulder up at the ground level. As owners you have the leverage to force execution, but you will experience less resistance when you collaborate. Be a “problem solving partner.” Understand roadblocks to initiative execution and work with stakeholders to find work arounds.
Don’t Try to Do Too Much at Once
The management team has been distracted throughout the sale process. They are eager to get back to running their business. They want to put out long-burning fires and perform to short-range plans. Overwhelming them with grandiose plans of value creation out of the gate is a sure-fire way to lose their attention. Translate your VCP to a multi-year phased plan. Work with management to agree on the speed and absorption rate.
Put the VCP on the Board Agenda
Only the initiatives with the greatest ROI make it to the VCP. These initiatives are important to the business and should be talked about on a regular basis. Having them on the Board agenda means someone is accountable. This person(s) is expected to come prepared and demonstrate progress.

Conclusion

Being great at VCP execution requires purposeful planning. It starts in diligence, and the first 90 days of ownership are the most critical. Setting up successful execution requires using data and proof points to get management to believe. Being great requires making fast and often bold leadership decisions. It requires senior executives to set the tone and stakeholders within the company to grab ahold and own initiatives.

Great VCP execution is grounded in practical, repeatable tactics. Plays such as leveraging banker insights and early strategic planning service to align ownership and management. Codified onboarding processes, VCP co-creation and rolling up your sleeves with management will nurture credibility and buy-in. Phased plans are more consumable and increase the likelihood of keeping the business engaged in the effort. Keeping the VCP on the Board agenda serves as a mechanism to ensure ongoing inspection and progress.

For assistance with executing your value creation plan and to join Alexander Group’s PE Insiders Council, please contact an Alexander Group Private Equity practice lead.