The private equity landscape has always been dynamic, but recent market conditions have heightened the importance of robust management teams in portfolio companies. As interest rates soar and market volatility becomes the new norm, the strategies that once guaranteed successful exits are no longer sufficient. For PE firms and C-suite executives, the message is clear: the quality and actions of management teams are pivotal to navigating this challenging environment and securing successful outcomes.
The Current Market Reality
A typical scenario in today’s market involves a PE firm attempting to sell a profitable portfolio company. Initial interest might be high, with numerous bidders attending management presentations. However, as the presentation unfolds, interest wanes, leaving only a few low-ball offers. This has become an all-too-common story amid rising financing costs and macroeconomic uncertainties. The days when multiple appreciation could drive returns are gone, replaced by an era where buyers demand convincing, evidence-based growth projections.
Action-Driven Success
To succeed in this tough market, portcos need to demonstrate that their performance improvements are the result of deliberate management actions rather than external economic factors. For example, a company that can link its earnings growth directly to specific management initiatives, such as productivity improvements and detailed operational strategies, will stand out. Demonstrating how these targeted actions have driven success can build a compelling narrative of sustainable, management-driven performance.
Lancor helps its private equity clients discover and evaluate forthcoming deals via access to leading executives who review our proprietary model of over 14,000 assets coming to market. This extensive network enables PE firms to gain early insights and make informed decisions, which is crucial in today’s competitive environment.
Lancor is in constant contact with thousands of executives each year through the 120+ retained PE portfolio searches we execute. We comb through and mine those same executives for asset specific deal angles and deal generation.
Highlighting Future Value Creation
In the current market, simply hinting at potential growth is insufficient. PE firms must provide clear, actionable plans that outline new sources of value. This involves developing a detailed roadmap that identifies new opportunities and justifies the company’s ability to succeed in these areas. By showcasing a proactive approach and providing a realistic measure of the total accessible market, a company can position itself favorably for a sale. This kind of ongoing, detailed growth planning is crucial for securing favorable outcomes.
Lancor partners with clients at each stage of the deal process—prior to an active deal pursuit, during, and post-deal—to drive better outcomes and higher returns. Through our pre-deal advisory practice, we combine our historical C-suite and board executive search experience with a refined and tested pre-deal assessment and deal sourcing methodology to help drive the desired investment returns.
Private Equity firms can partner with Lancor at each stage to allow a smoother process and higher returns
Providing Reasons to Believe
Management teams must also offer tangible, early successes to instill confidence in potential buyers. Companies that can demonstrate significant revenue growth and margin expansion through strategic initiatives provide compelling evidence of their continued growth potential. This kind of proven success is crucial in today’s market, where buyers are cautious and demand concrete evidence of future performance.
Lancor is in constant contact with thousands of executives each year through the 120+ retained PE portfolio searches we execute. We comb through and mine those same executives for asset-specific deal angles and deal generation, ensuring that our clients have the best possible management teams in place.
Addressing Today’s Challenges
Given the current exit backlog, PE firms need to rigorously evaluate each portco’s value-creation plan and market positioning. Key questions to consider include:
- How have competitive or market dynamics changed, and is the management team aligned on addressing these changes?
- What is the current strategy’s remaining potential, and what data supports this?
- What new initiatives are in place, and how much traction have they gained?
- Is the management team equipped for the next growth stage, and will buyers see it the same way?
By answering these questions, PE firms can better understand potential buyers’ perceptions and refine their strategies accordingly.
In a challenging market, the role of management teams in PE-backed portcos is more critical than ever. Their ability to drive action-based success, present clear paths to future value creation, and provide tangible reasons for confidence can make the difference between a stalled exit and a successful sale. For PE firms and C-suite executives, investing in and supporting strong management teams is not just beneficial—it’s essential.
Bain & Company. (2024). Move-in ready: Renovating your growth strategy (Global Private Equity Report 2024). https://www.bain.com/insights/move-in-ready-renovating-your-growth-strategy-global-private-equity-report-2024/
