People Performance Gives Portfolio Companies an Edge

During our recent online Q&A session for private equity leaders, Orla Leonard and Nick Twyman from RHR’s specialist PE team discussed the growing interest in people strategy. Gone are the days when getting a CEO and CFO in place was enough—now, that’s just the beginning of a talent strategy that needs to run from deal to exit and include not only the top team and mission-critical roles but also across the whole organizational asset.

What’s Changed?

Translating the investment thesis to the value creation plan is a well-trodden path. So, why are more CEOs and PE operating partners increasingly focusing on talent strategy? Here are a few reasons that we come across with our PE clients:

• The intensity of time frames. While PE life cycles can be longer, we’re seeing ambition to achieve an exit within three to five years. This puts additional pressure pretty much everywhere, meaning leadership’s capability to drive transformational change at pace is more critical than ever.
• The nature of the plan. We are seeing more growth-oriented value creation plans than in the past when the focus was more likely to be on efficiencies. Growth strategies are likely now to be complex and demanding, so the variety of skills and expertise that’s required needs to be available across a wider range of roles within the portfolio company. Not only within but also beyond the executive leadership team.
• Growing the exit value. The most progressive CEOs of PE portfolio firms know the value of being able to tell a robust story about their talent pipeline to a prospective buyer. As CEOs prepare for exit, having a good handle on your capability in the organization can positively contribute to achieving higher multiples at exit.

How to Keep Leadership Talent Engaged

The PE firms we work with have already bought into the value of developing an objectively informed talent strategy. But the challenge is keeping the portfolio leadership team engaged and supported once the value creation plan reaches the implementation stage. Firstly, this is a challenge because the portfolio company leadership team is likely to be exhausted after preparing the business for sale and reaching the deal stage. Secondly, those same people are faced with very new, different, and more challenging business problems to solve.

It’s important to address these talent concerns early to ensure the retention of key leadership talent. The PE firm can help by:

1. Maintaining consistent and regular communication with the CEO and leadership team. This will ensure the executive team in the acquired firm feels like they are part of the future and is clear on the role they can play.
2. Having the difficult conversations. In a leadership team that is used to more autonomy and agency, there will be candid conversations to be had about role changes, integrations of functions, and system changes. It’s important to have constructive discussions to keep the team supportive of the change agenda.
3. Anchoring the team’s performance in purpose. Different stakeholders in the PE equation have different agendas—acknowledge this, and anchor the team’s performance in line with the organization’s purpose. Getting the team mobilized around common priorities will positively impact performance.
4. Deal with the “post-close drag.” Talent due diligence can be restricted pre-deal with only limited information available on talent and culture. It’s often only after the deal has been signed that the doors are fully open, and the true culture and quality of talent become exposed. Address this early to plug gaps and accelerate the integration of new senior team members.

Overall, our advice is don’t leave it too late to address talent gaps. The executive team has a challenging task ahead for which they need to be prepared, skilled, and supported.

You can watch the webinar with Nick and Orla below.