PE firms are facing multiple headwinds, led by surging inflation, increasing interest rates, decreasing capital calls and continued supply chain disruptions. In the face of these headwinds, the competition for attractive investment opportunities is fierce. Although the private equity landscape in the US remains robust, deal volume and deal value are starting to taper. As a result, PE firms have to increase their focus on driving value through existing portfolio companies. Learning how to squeeze more value out of existing assets has to be a priority.
Whether through cost reduction, revenue growth, operational efficiency, innovation, or strategic acquisitions, these projects can often be complex and can require the utilization of external partners, like consulting firms and other professionals. While these partnerships can bring valuable expertise and resources to the table, they can also create friction and lead to project failure if not managed carefully.
We will explore some best practices for managing the relationship between PE firms, portcos, and consultants and 7 tips to drive successful outcomes.
Tip #1: Align on What Success Looks Like
One of the key factors in maintaining a successful relationship is having a clear understanding of what success looks like and how it will be measured. This means setting specific, measurable goals at the outset of the project and tracking progress against them. Regular check-ins and progress reports can help ensure that everyone is aligned and working towards the same goals. The success of any integration or value creation initiative should align directly with the investment thesis and any portco strategic plans. No changes should be undertaken that do not align 100% to the overarching strategy, or where success cannot be measured.
Tip #2: Define the Working Relationships
Before embarking on any project, it’s essential to define how everybody is going to work together.
This applies to the relationship between a PE firm, portco, and consultant as well. The three parties must come together to discuss what they hope to achieve through their collaboration, and they will all work together to achieve it. This alignment can help ensure that everyone is on the same page and working towards a common goal. Understanding the value that each party brings to the table and what they are responsible for is a “must-do” activity.
Tip #3: Set up Good Governance
Poor governance can kill any project, but it’s often overlooked. It’s the boring stuff. This means having clear guidelines, roles, and responsibilities for each party involved. For larger integrations this could mean setting up an Integration Management Office (IMO). For smaller roll-ups or individual Value Creation initiatives, this may mean setting up a steering committee made up of representatives from the PE firm, portco, and consulting firm. This committee should meet regularly to review progress, make decisions, and identify any issues that must be resolved. Whether though an IMO or a SteerCo, it’s important to establish a clear decision-making process and ensure that everyone understands the roles and responsibilities of the parties involved as well as the processes that will be used to govern the work.
Tip #4: Give the Portco a Voice
Nobody likes changes being forced upon them or having no say in critical decisions. It’s crucial to ensure that the portco’s leadership team has a voice in decision-making processes. This means involving them in the project from the start and ensuring that their views and opinions are heard. It’s essential to remember that the portco’s leadership team is responsible for the success of the business, for managing the changes that are brought about by the Value Creation initiatives and they need to have a say in how work is carried out. By involving them in the process, they will feel invested in the project’s success and will be more likely to support it.
Tip #5: Be Flexible, Be Patient
Managing expectations is another crucial element of managing the triangular relationship. It’s essential to set realistic expectations for the project and communicate them clearly to all parties involved. This means identifying any potential roadblocks or challenges that may arise during the project and being transparent about them. It’s also important to manage expectations around timelines and budgets, ensuring that everyone understands what is achievable within the given constraints.
As with any project, things don’t always go as planned. It’s important to remain flexible and be willing to adjust course as necessary. This means having open lines of communication with both the PE firm and the portco and being able to pivot when necessary. If something isn’t working, don’t be afraid to try a different approach – but manage changes through the established governance model.
There is a clear connection between the success of roll-ups and the speed of integration. The faster an integration is complete, the more likely the deal is to be successful. That doesn’t mean that work should be rushed, however. Creating value takes time, and it’s important to remember that change doesn’t happen overnight. Patience and persistence are key to keep working
towards the end goal. Building trust and a strong working relationship takes time, but the payoff can be significant.
Step #6: Celebrate successes
When a project is completed successfully, celebrate it! Celebrating success is an excellent way to build morale and encourage everyone to continue working together effectively. It’s important to acknowledge the contributions of all parties involved, including the PE firm, the portco, and any external partners. This will build trust and help pave the way for any future endeavors where similar teams may need to come together to achieve change. Having a track record of successful initiatives – and celebrating them – will build muscled memory that will reduce resistance moving forward.
Step #7: Continuously improve
Finally, it’s important to continuously improve and refine your approach to managing the triangular relationship. Take the time to review what worked well and what could have been done differently after each project and make any necessary adjustments to your approach.
In Summary
Managing the relationships between PE firms, portcos, and consultants is a delicate balancing act that requires clear communication, mutual respect, and a shared vision for success. By building strong relationships, establishing clear goals, and remaining flexible and patient, it is possible to create long-term value for all parties involved.
As consultants, it is our job to help our clients navigate this complex relationship and ensure that everyone is working towards a common goal. By following these best practices, we can help our clients succeed and achieve their goals.
