Archive for the ‘Controlling’ Category

What Stands Between Private-Equity Firms and Their Companies, Part 2: Proliferating Control Systems

Wednesday, June 25th, 2014

Here is the next part of my short series about obstacles to growth between private-equity firms and their companies. They come from my presentation “Who Pays the Piper Calls the Tune—What Private-Equity Firms are Regularly Missing” as part of the German Private-Equity Conference 2014 in Frankfurt am Main.

So what does often stand in the way of the relationship between private-equity firms and “their” companies?

Part 2: Proliferating Control Systems

One of the fundamental competencies of private-equity firms is their virtuosity with numbers. It is not rare for a company that has been taken to benefit from this skill quite quickly. Indeed, a high degree of professionalization is often reached. Typical control systems established by private-equity firms—systems that we see in our consulting projects—make possible every kind of analysis imaginable, right up to simulation. No wonder! In the end, you want to report to investors and banks regularly and accurately.

Yet in this context, sledgehammers are often used to swat flies. Some control systems are simply so bulky that they discourage management from doing what they’re paid for: to steer the company toward growth. A great many meetings only about control poses the risk of forcing the topic of material progress into the background.

The pinnacle is reached when entire systems are changed—as we have seen, for example, in the context of “secondaries,” where one private-equity firm takes over a company from another private-equity firm. In this situation, a first-class, oversize control system is changed over to another first-class, oversize control system. More precisely: A project comes to life because in reality, there can be no talk of “changeover.” These systems, which are then called the “control tower” or the like, can hold back a company significantly.

Overcome the hurdles. Less is more. The control system must fit the company. And, if you set aside your ego slightly, a private-equity firm that takes over a company can also simply take over the world-class system of another private-equity firm. That also saves time.

 
© 2014, Prof. Dr. Guido Quelle, Mandat Consulting Group, Dortmund, London, New York. All rights reserved.