Post Acquisition Work: The First 100 Days

Private equity post acquisition strategy

In life, you never get a second chance to make a first impression. And in private equity, you never get a second “first 100 days” after an acquisition. That’s why, according to a study by Grant Thornton and PitchBook, almost 90% of PE firms formulate 100-day plans when they acquire a business. It’s a critical timespan that sets the tone for the entire holding period.

Ideally, you should start developing this plan before an acquisition even closes. It is that important. And it is not as difficult as it may sound, because at least some key focus areas will be naturally suggested by the pre-acquisition investment thesis and due diligence. It often comes down to a matter of priorities and “effort-versus-benefit” calculations that emphasize quick wins and “must do” first steps related to large value creation levers in the investment thesis. It’s a season for picking the biggest, lowest-hanging fruit first. And while every portco and situation is different, there are some broad commonalities to good 100-day plans, which we will break down today.

The Key Focus Areas of 100-Day Plans

In many ways, the five focus areas below simply correspond to major functional parts of a business. But in the first 100 days, they will be prioritized differently depending on the business’s situation and the investment thesis that led to its acquisition. What will not vary is the fact that the PE firm and the company’s senior management and employees will still be getting to know each other and learning how to work together. So establishing a regular cadence of communication and strong, trusting relationships early on should be among the most important priorities.

If you have not been on either side of this process before, it takes more work than you probably realize. For instance, simply coming up with a board deck—a regular presentation for communicating the business’ progress to its board of directors—that both sides are happy with can be extremely challenging. How much information should be included? What is the best format to make the deck meaningful, easily digestible, and efficient to prepare?

The goal is a careful aligning of objectives and tactics, which is foundational to the implementation of any 100-day plan. According to a survey by Alix Partners and Vardis, roughly 75% of respondents from both PE firms and portcos cited “senior team alignment” as the number one priority of the first 100 days. It is far easier said than done, of course, and some degree of pushback from existing portco personnel can be anticipated. If you don’t overcome that and get everyone pulling in the same direction, though, imagine how much tougher the job will become as different viewpoints and cliques become entrenched over months and even years.

With a good, or at least workable, PE firm-portco relationship continuing to develop, your 100-day plan will typically include at least a few of the five focus areas below.

1. Assessing and Building Out Talent

It may surprise you to hear that a company’s headcount usually, though not always, increases post-acquisition by a PE firm. According to the Grant Thornton study, 69% of respondents in the PE community expected to increase headcount at a portco over the holding period, even apart from add-on acquisitions. While some people tend to associate private equity acquisitions with cost cutting and job killing, evidence in many cases shows the opposite, because at the end of the day, all PE firms want their businesses to grow, which almost always involves growing headcount.

In the first 100 days, you should look for gaps where talent needs to be added or upgraded, particularly on the senior executive team. Often, this will involve a lot of in-depth interviews with the CEO and other key leaders to understand where people are overloaded, where certain functions are too lean, and where people may not be performing. It is important to remember, though, that most executive hiring processes take at least 3-4 months, so developing a prioritization of needed hires is also crucial to avoid overloading existing management with the execution of these hires, as well as shifting team dynamics too far too fast. Assessing incentive structures and aligning them with value creation is also a top priority. In the book The Operating Partner in Private Equity, Roberto Quarta describes CD&R’s successful efforts to tie bonuses to gross margins (rather than ROI targets) at electrical products wholesaler WESCO, and to customer retention levels at personal care brand Jafra. Based on experiences such as these, Quarta concludes that the right financial incentives have a greater impact on people’s efforts than vigorous supervision.

2. Improving Financial Planning and Analysis (FP&A)

Ultimately, the success of a portco as an investment will be borne out (or not) in its financial statements. So financial reporting will frequently be a high priority area of the 100-day plan. Establishing key performance indicators (KPIs) tied directly to the plan’s initiatives and improving budgeting processes, cash tracking and management, and speed to close are all potential high priority initiatives. There are also often new ways to make finance a more useful partner to the commercial and operational decision-makers by leveraging business intelligence, though this is typically a longer-term undertaking that will extend well past 100 days.

Often, the businesses PE firms are acquiring, particularly in the middle market, will have only one or even no full-time FP&A professionals, so hiring for FP&A is a common 100-day priority. During diligence, PE firms typically put together financial analyses that are far more in-depth and potentially completely different than what a company looks at on its own in the course of regular operations, so sharing these findings and incorporating them into reporting is also key.

3. Delivering Operational “Quick Wins”

If there are any new product introductions, entries into new markets, or customer (re)acquisitions that were envisioned by the investment thesis, they will probably carry a high priority in the first 100 days. An overall growing of sales efforts and populating of marketing funnels can be a part of the early plan as well, but typically, these are more long-term objectives that can take a year or more to complete. In fact, significant operational improvements of any type often take longer than 100 days, or even a year, to implement. But it will at least be important to begin identifying key operational opportunities and developing a plan to exploit them from day one. This identification process often takes the form of a “diagnostic,” done by in-house experts at the PE firm or outside consultants, who will look at the commercial and logistical operations of a business and identify key strengths, weaknesses, opportunities, threats, etc. Once that is complete, the Board and management can begin working together to develop an in-depth, longer-term plan to address these findings.

As a case in point of the relationship between short and long-term modifications, according to the Grant Thornton survey the top two focus areas during 100-day plans are financial operations and reporting, and changes to the structure of working capital, in that order. These are both areas where 100-day “fruit” can probably be harvested. But at the same time, if the changes are done correctly they will tie into performance enhancements that continue into the long term.

4. Upgrading Technology

As with operational improvements, major computer system changes are often longer-term undertakings. ERP (enterprise resource planning) system implementations, for instance, can take an average of 21 months to complete. That said, identification and mitigation of any glaring system inefficiencies can certainly be part of the 100-day plan. Similar to what is often done with operational improvements, many PE firms will undertake a technology “diagnostic” in the first 100 days, with the goal of developing a plan to address major weaknesses and growth opportunities later on.

5. Pursuing Opportunities to Expand Inorganically

The relative focus on add-on M&A in the first 100 days will depend on whether the investment thesis is based on inorganic expansion and whether there are any actionable priority targets available in the months following a platform acquisition. In many cases, there will be at least a few potential targets for acquisition that the PE firm may want to explore right away, in addition to developing a longer-term acquisition strategy and pipeline. In The Operating Partner in Private Equity, Quarta describes executing “a series of earnings accretive acquisitions” of companies such as GE Supply, which transformed CD&R’s portco Rexel into a global market leader relatively quickly.

That said, most PE firms – even those with significant roll-up experience – usually proceed with caution in terms of pushing too many acquisitions on a new portco early on, especially when the company does not have a track record of successfully integrating numerous acquisitions over time. Outside of billion-dollar-plus companies, many PE portcos do not have a significant M&A function in-house when acquired, nor the resources or experience to integrate new acquisitions at speed, which can create a serious quagmire if PE firms put the cart before the horse in terms of acquiring additional businesses without the ability to manage them and properly extract synergies.

Conclusion: How to Work Your 100-Day Plan

Planning your work is one thing; working your plan is another. Implementation is a careful balancing act between the resources and capabilities available at the PE firm versus those at the portco, one calculated to produce desired outcomes in a very short span of time. The nature of this balance will determine how hands-on the PE firm can be in implementing the 100-day plan. Is the firm primarily a deal team, for example, or are there in-house strategy and operations experts? Can these be dedicated to a single portco, or are they spread across several? The precise type of expertise is also critical. A PE firm might have a great expert in lean manufacturing on board, but that will not mean much to a portco in the service sector. In areas where neither the PE firm nor the portco has sufficient expertise, bringing in outside advisors can also help move the 100-day plan forward at the needed speed.

Regardless of who is implementing it, above all else, a good 100-day plan must be as “SMART” (specific, measurable, actionable, reasonable, and time-bound) as possible, with no more than four or five priority initiatives that can feasibly be completed in a 3-4 month period. Furthermore, everyone, from the Chairman of the Board to line employees to outside advisors, should understand the plan and their role within it. Ideally, the plan should also be developed with an eye to what comes next (i.e., continued post-acquisition work beyond the first 100 days, which often falls into the exact same categories outlined above). The ultimate goal of an acquisition, ROI (Related: How Private Equity Firms Generate Returns), is a decidedly long-term undertaking, but it always begins with the first 100 days.

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