Prototyping Portfolio Company Professionalization

After closing a deal, the real work begins. We have spoken with many Private Equity investors, portfolio company CFOs, and other operators, and they shared their thoughts on post-acquisition best practices.

We hope this white paper pushes PE firms to think differently about change management at portfolio companies. Rather than waiting 6+ months for the “perfect” full-time hire, nimble firms tackle their to-do lists with project-based resources, while growing the full-time teams at the portfolio companies with a talent acquisition approach that doubles as brand-building.

In the early days after an acquisition, it can be easy for an active PE investor to get bogged down in a months-long planning process before you know what needs doing. A walk-before-you-run approach can not only save money, but it can also establish firmer footing for later consulting projects. Just as a start-up must be nimble when initially feeling out their market, so too must PE shops be willing to iterate on the best approach to get portfolio companies to the promised land.

Whether it is interim leadership (CFO, CMO, or VP of Sales) or mid-level leaders that will drive those functions forward, project-based resources can bring much-needed agility. They can change directions as needed, responding to newly uncovered needs of the business.

Similarly, many portfolio companies need to solve specific problems within a finite time period, and don't require a full-time resource to manage that specific issue on an ongoing basis.

PE firms that take an agile approach to growth initially overweight their teams with independent contractors or 1099s. While 1099’s can be a bit more expensive on a daily basis, portfolio company EBITDA will likely be in better shape over the long run by testing ideas and fixing problems in an agile way.

While some larger-scale transformations could require the support of a 4-6-person consulting firm team, many tactical priorities – or even strategic ones – can be addressed through use of agile 1099 resources. For example, the PE firm may require robust dashboarding and financial reporting to understand the current state of each of their portfolio companies in real time. A VP of Sales may have a poorly-directed sales team that is taking an ad-hoc approach to messaging rather than one that speaks clearly to a value proposition that is consistently promoted across sales and marketing. Or a CMO may need assistance in conducting a discrete choice analysis to inform pricing decisions. Depending on the scale of the effort, project-based teams of 1-3 people can be a much lower-cost way of addressing these challenges and opportunities.

Eventually, it may make sense to hire full-time resources (W-2s) to fill some of the functions you temporarily fill with 1099’s at portfolio companies. With experience, you not only will have more confidence in your ability to keep those W-2 resources fully utilized, but you’ll also have more confidence in precisely what types of resources (seniority, skillset) will be foundational to the success of the firm.