Getting culture and leadership right in mid-cap acquisitions

Rianne Silvey | 8 March 2024

According to CMBOR, mid-market transactions now account for 25% of volume and 31.7% of value of all private equity (PE) deals, marking a significant surge in the last two to three years.

With the increasing prominence of this sector in mind, Rianne Silvey looks at some of the unique talent decisions that will have to be made post-investment and provides insights on how to embed the leadership and culture needed to achieve ambitious growth trajectories.


Due diligence beyond the financials

It’s an unavoidable fact that a board who grew a business to, say, a £500m valuation, often does not possess the skills and capabilities required to scale it to £1bn.

Given that PE firms typically aim to optimise and exit their investments within a five-year window, this necessitates proactive and, at times, disruptive human capital strategies post-buyout.

Due diligence for a PE firm looking at a mid-cap therefore needs to include a comprehensive analysis of the skills and personalities of the leadership team they are inheriting (and theoretically partnering with).

Identifying potential issues early on allows for proactive management and strategic planning around any changes that might be required in the leadership team to align with the growth strategy.

When members of the existing team are not the right fit for the journey ahead, it’s crucial to have a plan in place to onboard individuals who have reached these milestones before and demonstrate a history of exceptional performance.

Thorough assessment phase

Post-investment, a thorough and thoughtful assessment phase is critical. This period is not simply about evaluating current competencies but also about identifying those individuals who, with the right coaching and support, can be nurtured to rise to the challenges ahead.

After all, it’s often more beneficial, both financially and culturally, to develop the potential within the existing team rather than displacing them.

The assessment process shouldn’t be seen as a one-time evaluation, but as an ongoing dialogue. Continuous assessment is needed to enable real-time adjustments and to ensure that key personnel remain aligned with the company’s evolving objectives.

When a team member can no longer grow with the company, despite all efforts, then you may need to reconsider your options in terms of displacement, whether through interim positions or permanent replacements.

However, the goal should always be to avoid undermining the existing company culture and to help the wider workforce to thrive under new ownership.

Respecting the founder’s transition

A key aspect of this transition process is assessing and agreeing the role and involvement of the founder moving forward. Founders are inherently intertwined with their businesses, and their emotional investment can sometimes act as a barrier to the changes necessary for growth under new ownership.

Of course, it’s often not beneficial for founders to exit immediately post-acquisition. They can bring significant value in terms of continuity, knowledge, and relationships. However, a gradual transition may be necessary to allow the company to evolve outside of the founder’s shadow.

It’s about reshaping the founder’s influence in a way that benefits the company’s growth, supports the new leadership, and maintains the original ethos that made the business successful in the first place.

Inevitability of leadership turnover

Following an acquisition inherited board members may have contractual stipulations to remain for a certain period to prevent a leadership vacuum. The irony of this can be that this obligation can sometimes lead to a situation where these leaders are physically present but not engaged.

Unfortunately, this ‘one foot out the door’ scenario is usually played out against a tight five-year growth phase, where time is of the essence and a wasted year represents a significant missed opportunity.

It’s therefore crucial for PE firms to anticipate this and have a robust transition plan in place that’s grounded in the reality of the likely longer-term motivations of inherited leaders.

Bringing the right talent onboard

Finding the right people to take on critical leadership roles post-acquisition is a nuanced process that benefits greatly from a specialised human capital partner.

Having extensive involvement in the private equity sphere has allowed us to build a robust network of senior professionals who not only understand the unique demands of working with PE firms but also relish the challenge.

It is these individuals, that often possess a distinctive blend of experience and drive, that you may need to onboard to deliver outcomes at pace. Not only are they  drawn to the potential rewards of seeing a project through to its successful conclusion, most importantly, they are practitioners who have honed their skills in building scalable growth processes.

That said, the tenure of such professionals may vary. While some are prepared to commit to a full five-year turnaround initiative, for example, others may specialise in shorter, more intense transformation projects.

The key is to quickly identify individuals with the expertise to set the company on the right path and define exactly what they need to achieve; not all stages of the company’s evolution will require the same transformative skillset.

Managing change sympathetically

All the above needs to happen while also maintaining employee morale and a strong culture. Effective change management must therefore be a cornerstone of sustainable post-investment growth, ideally led by professionals who are adept in the art of business transformation.

The introduction of change must be deliberate and empathetic, striking a balance between what’s needed for growth and what’s palatable and achievable to employees. Strategies for growth should be transparent, communicated effectively, and inclusive, making the entire workforce feel that they are part of an exciting journey of progress.

Putting it all together

The key to success in mid-cap growth after investment hinges on striking the right balance between preserving fundamental strengths, implementing essential change, and consistently ensuring that the company’s strategic objectives and its workforce are aligned. Thorough due diligence, assessment, coaching, and change management, guided by skilled experts, are vital in facilitating this process.

Discover more about our leadership development and methods for culture change, or if you’d like to speak to one of our consultants, please contact us.

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