Consistent organic revenue growth across the lifecycle of an investment requires the application of industry growth expertise at key points. A tune-up of your portco growth engine during the hold period is often a critical enabler of success in the Lifecycle Approach to Value Creation.
As discussed in our previous post, the application of Growth Gears Marketing principles accelerates the value creation plan (VCP). Revisiting the Gears is often required to maximize the output of your growth engine.
Carefully considered adjustments to Insight, Strategy, and Execution applied during the -investment period means that you refine existing plans and identify new growth levers to get your investment home with maximum return.
You want to re-assess the growth engine at the heart of your plan and fine-tune the roadmap and organization to increase momentum. Fixing growth challenges and gap filling take center stage in a somewhat different operating context where the competitive and market dynamics have often changed.
At this point, you often need outside perspective on how to evolve or redo the product and program innovation roadmap to stay the course or get back to plan. The right talent with an appropriate industry lens will construct the go-to-market efficiency plays that improve margins and boost long-term EBITDA.
A frequent problem is that management of a portco can become stuck in the day-to-day grind of just doing. They don't take the time to step back and reassess and say, where are we going?
Maximizing growth over the life of an investment requires them to step out of their day to day, go a little deeper than normal, and ask the hard questions that challenge who they are as a business and what it will take to achieve the growth ambitions required to maximize return.
This evaluation process should involve the same people as in the early post-acquisition phase with marketing driving the effort. Getting someone with an unbiased outside perspective who is seasoned in the industry can help develop clear Insight.
Sometimes leadership recognizes that they have challenges. So, they need to bring someone in who can help them understand why it is not working, someone with a growth lens to poke the bear a little and challenge current assumptions, someone with strategy savvy and an operating mentality.
An investment tune-up means recalibrating during the hold period to ensure the investment is on track with the VCP and that the VCP is still best suited to maximize return. You're looking at a lot of the same things as in the Early Post-Acquisition Phase and thinking about factors like changing market dynamics, and what you have learned about the customer base.
Consider what has transpired since the close that would require reevaluation, such as:
Internally, recalibration requires looking at how your capabilities as a firm have evolved and how you have built the team. Key questions to answer include what you need from a team going forward as you start to get bigger and running the business becomes more complicated. Do you have the right team in place? Or do you have to think about evolving your organizational structure in different ways to grow?
As the PE firm and portco recalibrate, they need to do so through the lens of maximizing return upon exit. The results of this process can be very different than the decisions that management may want to make for the longer term.
The goal of applying the Growth Gears during the hold period of a portco is to unlock new growth pathways and identify hidden growth levers that will help position the company for exit.
So, you optimize spending, optimize the organization, and optimize product development roadmaps, all those things that help you get in a better position.
It’s like your spouse just pulled up and you realize that you need to take the car in for service. It's been three years and you need them to go through all the major systems and check to make sure that everything is operating how it should to stay in warranty.
If you go deep enough to really understand, and make sure that all the systems are working, then you know you're in position to get the maximum out of your investment. Whether it’s your car or your business, a mid-cycle tune-up ensures that it’s on track to deliver maximum return.
Actions to take now:
Full series on Lifecycle Approach to Value Creation
Topics: Private Equity, Due DiligenceDec 15, 2021 9:55:34 AM