In a recent conversation with a CEO, we heard something disturbing – but completely fixable.
The company CEO — who had prior experience with private equity — said to us, “After a private-equity firm buys a company, my experience has been that around 90% of those firms don’t completely deliver on what they said they would help out with.”
It is critical for CEOs to get the necessary support and resources to help their companies reach their growth goals. We believe that a foundation for growth starts with a great partnership between the CEO and the private equity firm. This partnership is built on both parties (1) understanding each other’s capabilities, (2) setting realistic expectations and (3) delivering on their commitments.
Understanding capabilities falls on both the PE firm’s and the CEO’s shoulders. Performing diligence before the partnership is established is critical to distinguish the genuine capabilities of each side. In order to have successful growth outcomes, each party must understand what the other brings to the table.
A PE firm needs to not only provide strategic guidance to the CEO and the company, but also offer the necessary resources to support the execution of those strategies. In turn, a CEO needs to be put into a position of success and be able to focus on their core capabilities.
Set Realistic Expectations
Based on the current capabilities of company, the management team and PE firm should work collaboratively together to develop a realistic growth strategy and road map. Then they should determine what resources are needed to achieve the company’s goals.
This will help both sides set the right expectations so everyone is on the same page. The PE firm and the CEO (and/or management team) must be clear on their distinct roles, what each individual will focus on and what the PE firm will provide.
Deliver on Commitments
The CEO and PE firm should work closely together to ensure the company has the support and resources to successfully implement growth strategies. Each side needs to fulfill their role and execute the plan. The PE firm needs to continue to instill trust in the CEO and the management team. Trust is not created by only a handshake – it is built and strengthened continually.
The CEO must also be in constant communication with the PE firm about the challenges they face. This helps the PE firm figure out what specific support the company will need to grow. Transparency is key!
Success for Both Sides
In order for the partnership between a company and a private equity firm to be successful, both parties need to understand what one another brings to the table, set realistic expectations and then just execute. From then on, both the CEO (and/or management team) and the PE firm must continue to be flexible and adapt, mutually investing in one another for the success of the whole partnership. This is the real recipe for a great long-term relationship.