The 100-Day Plan is critical to jumpstarting value creation. How can a firm ensure that a change in leadership does not hinder that process? Experts from Baird Capital, Grant Thornton and Ridgemont Equity Partners discuss how to effectively execute and communicate leadership transitions.
When Value-Add Means Leadership Change
The Art & Science of Investing
David Snow, Privcap:
We are joined today by Rob Ospalik of Baird Capital, Ed Kleinguetl of Grant Thornton, and Jack Purcell of Ridgemont Equity Partners. Gentlemen, welcome to Privcap today. Thank you for being here.
So, the 100-day plan is a critical aspect of creating value, or at least jumpstarting the value creation process in a private equity investment. Often times, a change in leadership is important for the transformation of the company in which you have invested. It's a sensitive subject, but when happens when a change in leadership is part of the 100-day plan? How is that plan executed and communicated in an effective way?
Rob Ospalik, Baird Capital: It definitely has implications for the 100-day plan, obviously. And it, in many instances, will mean that the 100-day plan gets pushed for a little while because what you don't want to do is come in and set expectations. And by that, there are tactical elements of the 100-day plan that aren't going to get-, that will continue press ahead with those. But if we're about to have a change in leadership, we need to push the strategic elements out. We need to accomplish the goal of the tactical elements, the expectation setting, how we work with you. But if there's a change in leadership, we really need to make sure that we've got the team in place. And that that's communicated. And there's a whole other topic around how do you effectively communicate a change in leadership that's an important part of that. And I think with that, what's very important is that you make sure that there is candid and open conversation. And expectations are set with the management team because you don't want a situation where you have a team that's not sure what the next shoe to drop is going to be, does not feel like they've been dealt with in a straightforward manner.
So, the important thing in those situations is that you have honest, open, direct communication. And then, practically, from a 100-day plan standpoint, it's going to push out a little bit, in terms of the strategic elements because you're going to want to make sure that you've got a team in place to the point of walking elbows and moving forward. You need that team to be in place. You need to understand. Everyone needs to understand they're part of that team. And that you are going to execute on that.
Ed Kleinguetl, Grant Thornton: I think one of the key focuses if you have a leadership change is business stability because many times, the key leader has some sort of key relationships, whether it's with a major supplier, with major customers, with the people in the organization. So, focusing on stability first, and having an orderly transition becomes more important than before immediately launching into growth initiative. So, it's to make sure that nothing goes backwards before things go forward.
Snow: Jack, thoughts on change in leadership?
Jack Purcell, Ridgemont Equity Partners: Yeah, I think it's tough because the level of complexity just gets compounded. Just naturally, when a private equity firm invests in a business, there's a change in the way things are done, right? And when you add to that, a change at the CEO level, it sort of more than doubles the complexity around change. And so I think the comments these guys made about let's just make sure we keep the train on the tracks, that's really got to be the focus because one order of change with new private equity ownership, a second order of change with a new CEO and a playbook that's just packed with having a business enter new markets, having a business try and grow at a rate that it's never grown before, that can just completely cripple an organization. And that's the last thing you want to do as a private equity investor. So, I think in the case-, and it doesn't happen that frequently, but in the case where this is a CEO transition right at the time of a new private equity deal, I think the pace at which you move just naturally has to throttle down.
Kleinguetl: There's one other point to make kind of on a quasi related area is in that 100 days. All the 100-day plan and all the dialogue with the leadership team, particularly, in an entrepreneurial environment, is to create that we can work together, create that stability and all that. If that's not done-, and I've seen this in a few cases where the entrepreneur/owner had it, said this is too much for me, you have kind of taken over and then, you have to have almost an emergency change. Many entrepreneurial businesses, that number two isn't necessarily the strong enough individual to step into the owner's role. And so now, you're in the stability mode of having to find a replacement executive. And then, keeping the business stable. And it does put on hold the major growth and ramp up objectives that typically were the what was the objective in investing in the company in the first place? So, it also becomes why that 100-day plan, why that dialogue becomes so critical in managing expectations and setting the stage for the future to make sure that the entrepreneur's energized and engaged about where the business is going to go, going forward.
Ospalik: Yeah, I think that's clearly the most disruptive situation because that unplanned leadership change at the top can really throw a wrench in the works. So, that almost ties back to what you're doing pre-closing, to your point, Ed, about making sure that the entrepreneur is engaged, energized, we go through an assessment process. Anything you can do to get inside, in terms of who am I partnering with? And making sure that you've got a partner that you're aligned with, going into the transaction.
Expert Q&A with Ed Kleinguetl, Managing Director of Grant Thornton
What is the magic of the 100-Day Plan? Why is it such a valuable tool?
Well, the reality is why the Hundred Day Plan is important is because at the day of closing, according to general market study, there's only so much energy towards change. And so on day one, the day of closing, you have maximum velocity, and you've got about a hundred days to implement a number of those changes, particularly, in terms of trajectory. After that, people settle back to business as usual, kind of hunker down. And if the right trajectory isn't set during that period of time, then the value will ultimately not be realized. It doesn't take two years to figure this out. The hundred--if the first hundred days aren't correct, it will not be as liable a deal as it should be. That being said, a hundred days actually tends to be more than a hundred days. It is days before closing, to lead up to build velocity going into maximum momentum through the hundred days.
Tell me about what is unique about how Grant Thornton works with Private Equity firms on their 100-Day Plan?
Well, there are actually two things that make Grant Thornton unique. First of all, the value creation component, the integration component is part of the transaction advisory services within Grant Thornton, where other firms, that's part of business consulting, and it's not typically brought into bear as part of the transaction process. So it's kind of separate and distinct. Second, within Grant Thornton, there are a number of deep subject matter advisers that can be brought to bear in terms of systems, financial controls, a focus on the human capital components of the business. A focus on customer strategies, so bringing in those key subject matter advisers in the key areas that a client wants to grow, that makes Grant Thornton quite unique.