Driving successful private equity investments

In this podcast episode, our Business Doctor, Clare Harrall, Joe Regan and Dan Adler, partner at private equity firm Apiary Capital, dive into the crucial role individuals play in driving successful private equity investments.

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Transcript

00:00:00 Clare 

Hello and welcome back to the Business Doctor Podcast, where we untangle the threads of successful business practises. I'm your guide on this journey. 

00:00:09 Clare 

Clare Harrell and with us today is Joe Regan from the Moore Kingston Smith's People Advisory team and Dan Adler, partner at APE Capital, who brings with him two decades of private equity (PE). 

00:00:22 Clare 

We're going to unlock the role of people in successful private equity transactions, exploring how businesses can sink their people, plan with their aspirations, and what private equity firms seek during due diligence. 

00:00:34 Clare 

So Dan, can you explain how businesses can align their people, plan with their aspirations for private equity investment? 

00:00:41 Dan 

OK, so I think it's really important to say that the people element is the key part of the business plan. It's the key elements that we're looking to test. 

00:00:52 Dan 

Literally, do we have a fit and a shared vision for the lifetime of the private equity investment? And I think from a management team's perspective and from founders’ perspectives, I think it's for them to be honest with themselves and question, are they up for the journey of working in private 

00:01:11 Dan 

Equity? Because it feels very different 

00:01:13 Dan 

when you bring up more private equity and I think also is their team around them up for that journey as well. 

00:01:20 Clare 

How do private equity firms address their gaps? 

00:01:23 Dan 

Well, I 

00:01:24 Dan 

Think, I mean the first point is to identify where those gaps are, and I think you do that in collaboration with the management team. 

00:01:31 Dan 

That's really important and I think the most important message is if you are adding additional bench strength to the management team at the time you do the deal, it's to not 

00:01:43 Dan 

squash the good parts of the business that exist today, to not squash that entrepreneurial flair and what's growing the company today. So I think bringing new members into the 

00:01:53 Dan 

team again is it's really important, obviously capability, but in terms of their cultural fit and alignment with the management team as well. 

00:02:02 Dan 

But I think what can be valuable, if you are adding to the team, is those additions to the team (typically that can be CFO and chair, they are probably the two most 

00:02:13 Dan 

often regularly filled roles at appointing PE deal) 

00:02:18 Dan 

if they have prior 

00:02:19 Dan 

PE experience, because I think that is very additive then to the incumbent management team. 

00:02:24 Clare 

Thanks Dan. So Joe, can you share your experiences in helping clients shape people plans that align with their business objectives? 

00:02:32 Joe 

So for us, when we did this for a client in media marketing services, it was very much around looking at readiness to launch into that process. 

00:02:42 Joe 

And one of the great products that we've got in our itinerary, if you like, is that we've got our talent 360, which identifies those skill gaps. 

00:02:52 Joe 

And their readiness to launch a sell process and the talent 360 covers 8 areas and that's around compliance attraction recruit. 

00:03:02 Joe 

And reward recognition, progression, performance and retention and for compliance, we look at things like contracts of employment. We look at national minimum wage, we look at the right to work for the attraction pace. We look at how attractiveness they are, how attractive they are in the market in terms of 

00:03:22 Joe 

them acquiring new talent and potential skills that they need. 

00:03:27 Joe 

We look at recruitment generally in terms of what their practises are and whether they're aligned to their employer value proposition. 

00:03:34 Joe 

If they've got one reward, we look at benchmarking salary, benchmarking against competition and then recognition in terms of how engaged the team are that sit within that. 

00:03:47 Joe 

Progression we typically look at things like competency framework and then performance will look at a performance, development plans and appraisal system and then for retention, we generally look at their culture to see what that looks like and we worked on another client in media marketing services again which was very much. 

00:04:07 Joe 

Around the outcomes of the talent 360, which really focused on the preparedness of that and that was around management skills. 

00:04:15 Joe 

So some of those developments that we did were around resilience training. We looked at managing through change and developing yourself and your team. 

00:04:24 Joe 

And then also we looked at things like succession planning as part of this as well. So, readiness and if founders do 

00:04:32 Joe 

tend to leave at the point of acquisition, who is in going to be still remaining in the organisation that's able to take that business forward with that investment. 

00:04:45 Clare 

Dan, what are the crucial elements during due diligence? What do private equity firms generally seek in a potential trap? 

00:04:52 Dan 

Yes. And I assume you heard Clare that question is 

00:04:54 Dan 

specifically on the people element of 

00:04:56 Dan 

he business in terms of-- 

00:04:58 Clare 

Yeah, yeah. 

00:05:00 Dan 

So, like every other element of the business that PE looks at there has been a flurry of products and services develops to help us assess the opportunity. So we will use tools such as psychometric tools 

00:05:18 Dan 

and personality test. 

00:05:20 Dan 

But the fundamental tool in our kit is referencing and whether 

00:05:27 Dan 

we choose to do that referencing through 

00:05:29 Dan 

an independent specialist, or whether we do that ourselves, that will depend on our expertise and our knowledge of that particular sector or and how large 

00:05:40 Dan 

that we're trying to approach and to 

00:05:42 Dan 

review, but I think the number one thing we're trying 

00:05:44 Dan 

to understand is 

00:05:45 Dan 

that team capable of taking the business on that journey going forward and coupled to that is what's their motivation and motivation, as you know, is quite a subjective thing and getting to know the people is really important and that's why the types of business we invest in, we like to take a long time to get to know 

00:06:05 Dan 

the management team we’re being asked to back and that goes to two ways, by the way. We encourage them to do the same with us as well. 

00:06:10 Dan 

The referencing goes two ways, but I think it's understanding: are these guys up for the journey and why are they 

00:06:16 Dan 

choosing to go down the PE routes? 

00:06:21 Clare 

What if the team is willing, but potentially not up to the task? How does the business proceed then? 

00:06:28 Dan 

I suppose the ultimate 

00:06:31 Dan 

view would be if you really didn't think they were up for the journey, then you walk away. 

00:06:36 Dan 

You know, if you don't think you can get there, but I think not to be defeated. But 

00:06:42 Dan 

if there 

00:06:43 Dan 

are obvious gaps, and it's about helping him fill in the experience. It's about who else can you bring to 

00:06:48 Dan 

see. The great thing about working in mid-market private equity is it's really well understood by most 

00:06:55 Dan 

people in business. 

00:06:57 Dan 

And I think, you know, we are lucky working in this market. We've got a deep rich pool of talent who will work with PE backed companies either on a permanent or interim basis 

00:07:09 Dan 

in a variety of roles, and I think what's really important 

00:07:12 Dan 

is to not take a cookie cutter templated view of what boards and management team should look like, and I think you you have to take your time to do diagnostic on what does the management team need and what needs to be brought in. So that might be the really obvious roles like Chairman and CFO that might be a very specific 

00:07:34 Dan 

role, for example, sales or technology development or experience of taking a company into a different overseas market. And I think that just takes time and I think the 

00:07:45 Dan 

other one I should add 

00:07:46 Dan 

is the increasingly important 

00:07:49 Dan 

role of the chief people 

00:07:51 Dan 

officer, that's something that's become extremely important to PE backed companies, particularly 

00:07:58 Dan 

firms such as 

00:07:58 Dan 

mine when we're back in certain sector companies. 

00:08:03 Clare 

Would you always 

00:08:04 Clare 

recommend having a Chief People officer and if so, why is the role so critical? 

00:08:09 Dan 

Well, at the risk of sounding cliched, I think it's because the most important assets in the company are the people and we all know whatever we do for a living that the labour market is tough, it's competitive and if the company has got good people who needs to recruit more good people, we need to hold on to them. 

00:08:29 Dan 

We need to give them a rewarding and exciting career and you know, private equity, getting involved with the business can be and should be a very exciting career opportunity for those people. But we want to make sure that we've 

00:08:41 Dan 

understood their career aspirations and we're giving them the career development that they want. And you know again, at the risk of sounding cliched, looking after the most important assets that we have in the business. 

00:08:55 Clare 

So thank you for tuning into the Business Doctor Podcast. Remember, do visit our website for more insights and our array of other podcasts. 

00:09:04 Clare 

I'm Clare Harrell, reminding you that our exploration of people power in private equity is ongoing. So join us for part two next week and until next time, keep thriving in business.