Private Equity - investing, acquiring, and acquired

Private Equity investing, acquiring, acquired

Often strategic business purchases rely on relationships, manual information gathering, intuition, and experience to evaluate a potential investment. But not all acquiring or investing firms have a reliable process to truly understand and measure the value of the workforce. A thorough analysis, beyond financials and quality of earnings that incorporates a talent assessment should be carried out to aid not only in valuation but also capability of resources to execute goin forward.

Talent evaluation, is a highly advantageous approach utilizing data to support investment decisions.

Here are four ways private equity firms, investor and or acquiring companies, in general, can benefit from a talent evaluation and optimization process:

From evaluating a leadership team to hiring a next managing partner, there are several reasons why you should integrate a talent optimization strategy.

1.   Evaluating the leadership of a target company 

Throughout the due diligence process, managing partners of private equity firms invest much time getting to know the leadership team of a target company. This period enables partners to build an appreciation and identify what motivates them. Despite efforts, an element of subjectivity and bias can creep into the analytical process as relationships are formed. Leadership works hard to gain managing partners' buy-in on their idea. Talent optimization can help mitigate subjectivity and deliver a data-driven, more analytical, and objective review of the leadership team. 

A process path; Once a letter of intent is signed, a behavioral assessment of each member of the target company’s leadership team furnishes information uncovering how each individual leader is naturally wired to work, communicate, think, and make decisions.

These insights help the firm understand the leadership team’s overall risk tolerance when considering proposed investment strategies as well as identify which members may be more resistant to accept change.  

2.   Aligning the talent within portfolio companies 

After a key investment has been made in a business, acquiring firms seek a return. The investing firm’s leadership is fundamentally responsible for the success of the investment, executing the goals and objectives of the private equity firm.  

Using a talent optimization platform, every employee within a company can be evaluated to ensure their behavioral drives align with the investment strategy. e.g. if the focus is to expand the product line to grow market share, employees would need to be comfortable with ambiguity and they’d need to thrive under pressure to be innovative and risk-tolerant.

3.   Improving communications 

Regardless of a firm’s size, communication is critical.  

Awareness is a basis for improvement. It’s essential all employees understand how they’re each individually wired and how to handle any differences they may have in approach and style. 

In a larger firm, there’s often more specialization. Expertise exists across broad disciplines from Process improvement to Research,  Tax, Marketing, or Sales strategies. Teams are formed to collaborate and deliver desired project or investment outcomes. But teams are not all made equally – team dynamics are key and not as mystifying as often accepted. They are one of the key 4 forces of disengagement and often prevent a project from moving forward. Without insight into team dynamics, results are left to chance. 

-      In a 2019 survey of > 3,000 companies, only 21% of US employees were actively engaged

-      A 2017 Gallup survey identified for every $10,000 spent on salary, $3,400 is squandered due to lack of discretionary effort

-      9 out of 10 drivers responsible for turnover are organizational (culture)and leadership.

-      Disengaged employees, each year are 12 times more likely to leave including best performers.  

A talent optimization platform can provide insights that allow each person to easily understand how their new team member are wired. This can drastically reduce the time it takes to build cohesion among the group and make for more efficient and effective collaboration as project teams are regularly assembled and reassigned.

4.   Identify the next managing partner fits

Acquiring or investing companies like Private Equity firms have their own risk profile - Some being more comfortable taking greater risk. A next hire needs to fit the firm’s investment profile strategy. Experience and knowledge may fit, but if risk tolerance, cognitive or natural behavioral tendencies, and cultural fit are off the chances are overall turnover and therefore poor performance will be prevalent. 

Businesses that use talent optimization are more likely to find the perfect fit, avoid costly miss-hires, increase engagement, greater people fulfillment driving durable resilient company performance.   

Workplace and workforce data are an unused lever most companies do not comprehensively harness - why don't most companies embrace this? Talent optimization is fundamental to organizational health -helps with investment/acquiring firms' due diligence beyond financials and quality of earning - accelerating, and underpinning the sustainability of company performance.

Acquiring businesses are better positioned when using talent optimization to evaluate and support investment decisions more quickly and accurately. TO applied across allincorporates assessments, from behavioral, to cognitive, job role, strategy alignment, engagement, and cultural fit for comprehensive due diligence, but also thereafter to help ensure engagement and most effective execution.

Gain improved insight through comprehensive due diligence incorporating talent optimization to systematically increase portfolio performance

The way we do business is changing. The waves of exponential technologies disrupting broad industries is happening. Is your firm leveraging talent optimization and the technology needed to succeed now?

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