THE ROUND
Driving Success at PE-Owned Firms: How Operators Can Avoid the Pitfalls By Lawrence Siff
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perating a private equityowned company presents unique challenges, especially for CEOs and CFOs. Since the PE firm’s goal is to sell the company, they will likely be focused on value creation within a short period of time. For this article, I spoke with four CEOs and two CFOs who have been serial portfolio company leaders (often with multiple PE owners at the same time) about mitigating some of the challenges faced while leading a PE-owned company. Insights that emerged from those conversations for the first-time CEO or CFO of a portfolio company include: Do your homework up front. Speak with leaders of other portfolio companies to find out what it’s like working with the PE firm. As one of the CEOs I spoke with said, “You
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“DEVELOP AN HONEST AND TRANSPARENT RELATIONSHIP WITH YOUR SPONSOR. TREAT THEM AS YOUR PARTNER.” PORTFOLIO COMPANY CEO need to know what their style is; what kind of information they want and how often; what their philosophy is; and how they handle ambiguity and bad news. Some PE firms are heavily involved and others are more passive; some want to know immediately if there is any bad news and others prefer to wait until the weekly call.” Treat the PE firm as your partner. “Develop an honest and transparent relationship with your sponsor,” advised one CEO. “Treat them as your partner.” All six executives said that PE firms “don’t like any surprises.”
Your job as CEO or CFO is to “deliver on your financial commitments, keep them well-informed, be aggressive, constantly make improvements, and astonish them with your initiatives,” said another. For example, one focused on selling more to their existing customer base, resulting in substantially increased EBITDA, in addition to expanding overseas. Get out of the gate quickly. Once you take PE money, the gun has gone off and the race has started. Have a well-developed 100-day plan. “IRR and CAGR are critical within a
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6/22/21 12:05 PM
