Archive for the ‘Private Equity’ Category

What Stands Between Private-Equity Firms and Their Companies, Part 5: PI (Project Inflation)

Wednesday, July 23rd, 2014

This is the fifth and final part or our short series about increasing the potential in the relationship between private-equity firms and their portfolio companies. The other articles are available by clicking on the “Private Equity” category here. Today’s topic is one of my long-time favorites: leaving/cutting things out.

How many “master plans” have peen drawn up? Sometimes they go by other names, such as “growth agenda,” “future map,” or “Roadmap 20XX,” or . . . You can probably think of others. How many management teams have agonized over this exercise? How many projects have been developed from these “master plans?” Countless numbers.

How many projects have actually been implemented? And in the final analysis, how many of them succeeded? Significantly fewer. But that stops almost no one from assessing a company’s health by the number of its growth projects. However, huge frustration can arise if priorities are constantly shifting in the face of an immense and confusing project-landscape, or when no one really knows, any more, what the priority of any particular topic is at the moment—which has the advantage that no matter what, you are somehow working on something important.

In my presentations, I have abbreviated this state of affairs “PI,” or project inflation. According to our observations, companies don’t have too few projects. They have too many. Not everyone who has MS Project on his computer is a project manager. Not everything that’s called a project, is a project. When used to justify a position, the idea that “I have a project, therefore I exist” is the enemy of growth. If PI suddenly develops in the relationship between a private-equity firm and a portfolio company, it has the additional disadvantage that the ambitious and generally established goals of investors are postponed far into the future. And then, quarterly board meetings become agony.

Cut 50 percent of your internal projects. Then add 10 percent market-oriented projects. In doing so, you will put yourself on a significantly better path than the one you are on today. We have developed a methodology that does exactly this, with a clearer evaluation of individual projects. The impact is striking.

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

What Stands Between Private-Equity Firms and Their Companies, Part 4: Too Little Interest in People and Processes

Wednesday, July 9th, 2014

Here we are already at the fourth installment of our five-part series on opportunities to improve the relationship between private-equity firms and “their” companies. Today, we’re going to address the lack of interest in people and procedures that we often observe.

We have been able to establish earlier, in installment three, that it’s a good thing when private-equity firms and “their” companies don’t let responsibilities fall as they may between them. In many cases, we have observed that a positive interest (by the people-in-charge at the private-equity firm) in specific individuals involved—certainly at the executive level—coupled with a greater interest in procedures and their details would have done—or would do—both parties well.

Often what’s important are the signals that are sent. If a new investor—and it is largely irrelevant whether this is a private-equity fund or a strategic investor—takes an interest in the details, and when without meddling, he attempts to understand the essence of the model beyond its efficiency and possible “leveraging,” acceptance of the investor within the company rises quickly. Do not undervalue this symbolic element, because it forms a basis for trust. Successful investors devote a great deal of time to due diligence, in order to understand the system more fully. As mentioned before, less to talk about it afterward than to show earlier: “You are important to us.”

That’s not something you support with numbers. In our projects we encourage the exchange of content as a matter of course, if it pertains to our consulting mandate.

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

What Stands Between Private-Equity Firms and Their Companies, Part 3: Uncertain Roles, Competencies, Responsibilities

Wednesday, July 2nd, 2014

In the third episode of our short series about hurdles in the relationship between private-equity firms and the companies they take over, we’ll focus on rolls, competencies and responsibilities, which are not always adequately resolved and possibly cause confusion between the players.

For a company taken over by a private-equity firm, it’s an entirely new ball game. Insecurity sets in. Your own position might be at risk. Expectations are unclear, or worse: They are supposed to be clear, but they are not articulated. What is management to do?

The company that has been taken over often perceives representatives of the private-equity firm as if the latter want to be the experts in the business. Sometimes the perception is ungrounded, but all too often, the arrival of the private-equity partner and its employees is all but certain to nourish this very expectation. A big threat, because the company will buttress itself with a counter-response, and a wholly-avoidable, confrontational situation arises. The threat manifests itself in operational results if one party seeks to prove that the other is not only wrong, but responsible for their present quandary. Pointless.

In order to prevent such situations from arising in the first place, our advice is that everyone should concentrate on what he can do best. The company must remain the expert in the field, as long as members of the advisory are highly-competent. The private-equity firms must perform their function as catalysts in matters relating to networks, finances, overall growth strategy (for example, buy-and-build), and to ask brilliant questions of management. Growth of the company is incumbent upon management, not the private-equity firm.

Through such role clarification—ideally led by a neutral third party at the very outset of the new relationship, and that must also include a detailed definition of responsibilities and competencies—brakes on growth will be released.

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

What Stands Between Private-Equity Firms and Their Companies, Part 1: Toward a Sharper Focus on Financial Aspects

Saturday, June 14th, 2014

Herewith, as promised, is a 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 1: Toward a Sharper Focus on Financial Aspects

Absolutely. Private-equity investments are all about money. Often about a great deal of money. The investors want to earn just as much from the deal as management, which not uncommonly also become investors. That is fine, too, as long as it doesn’t affect the substance of the company.

But: It is easy to forget that company employees do not necessarily “perform” for money. Of course, there are employees who run faster when there is more money to be had, but most employees are won over by substance, by collective achievement, by goals, completed sections of a path agreed to in advance—not by operating numbers, salary, profits, EBITDA—and the number of employees will increase before it will decrease.

The junior designer would like to design cool products. The head of marketing would like to develop the brand. The young engineer would like to improve procedures. Money is a so-called “hygiene factor,” not a tool for motivation.

Overcome the obstacles. Private-equity firms are well advised to grapple with the the substance of a business and engage employees in a conversation about that. Discussions of financial aspects ought to be reserved for boards that assume control of financial management and communications.


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

Growth Leverage for Private-Equity Firms and the Companies in Their Portfolios

Wednesday, June 11th, 2014

“Who Pays the Piper Calls the Tune – What Private Equity Firms are Regularly Missing”—this was the title of my VIP-dinner speech on the evening preceding the German Private Equity Conference 2014, in Frankfurt. Before an audience of decision-makers and CEOs of private-equity firms, I addressed five factors that, from our consulting experience, often stand in the way of even more effective cooperation between private-equity firms and their portfolio companies:

  1. Too much focus on money
  2. Oversize controlling systems
  3. Poorly defined roles, competences, and responsibilities
  4. Lack of interest in people and processes
  5. PI: “Project Inflation”

The intentionally provocative presentation (“Too much focus on money?? In the private-equity sphere??”) produced an animated response and offered additional topics for discussion during the subsequent VIP dinner. The general tenor: A good relationship between company management and its private-equity shareholders rests on mutual understanding and trust, which in turn forms the indispensable basis for profitable growth.

If you would like to watch the speech, you can download a video of “Who Pays the Piper Calls the Tune” (ca 800 MB) here.

Over the next few weeks in this column, I’ll address each of the five points.

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