An impromptu conversation with Lucie Kaplanová, mergers & acquisitions expert and senior investment executive, led me to a few strategic insights on how private equity group representatives perceive the CEOs of promising companies and what they need from them in order to consider those companies for strategic investments.
“Typically, private equity groups want companies to have a very senior, very experienced management team. If I were to advise the CEOs of such target companies, I would encourage them to profile themselves as excellent at thinking strategically about what should be done with the company they lead,” Lucie said.
ROBUST STRATEGIC THINKING, A STABLE EXECUTIVE TEAM, AND PROVEN CAPACITY FOR INORGANIC GROWTH
The purpose of private equity is to repeat an already proven success story and simply make it bigger.
“When you look at target companies, you value the management as a specific part of the company. You want to see that they are able to work together well as a team and that they are able to integrate new companies into their thinking and business model.
The best case for private equity is: I have a company with a great product in a growing market, and I have the executive leadership team and the CEO who are capable of understanding market dynamics to grow the business inorganically,” Lucie said.
A track record of successful integrations of different companies into the current business can help, but it’s not obligatory.
“Of course, private equity values if there is proof that the company has already integrated another entity, bigger or smaller. What’s relevant is how they integrated a company with a different cultural background or different product lines. If the story is there, that’s what private equity will appreciate.”
In Lucie’s view, a CEO trying to attract private equity must feature dual capabilities:
- To lead a stable, experienced executive team well, and
- To lead the company through accelerated inorganic growth.
“As private equity, you expect something different than perhaps a CEO who grew up with the company. There, people are typically concentrated on performance, product development, sales, people relationships, but not so much on strategic growth – and even less so on inorganic growth.
Private equity-ready management should show that they understand the market, they know various market players, and they have a good sense of where to grow and how to grow. Currently, this includes the ability to prove that you also follow trends in online sales and AI integration – not just talk, but in a way that shows you understand the impact of AI on your industry,” Lucie added.
IT’S THE COMPLIANCE, STUPID
One more vital point Lucie emphasized is that private equity groups analyze a company’s level of compliance with a fine-tooth comb.
Private equity groups want two simple things: to make money and to stay out of trouble. “Compliance takes care of the second part,” she said.
Therefore, compliance – or the lack of it – can be a red flag for private equity groups that could prevent the PE investment altogether.
Last but not least, CEOs of private equity-ready companies need to show that they can think about growth in well-delineated time horizons.
“Private equity groups know that they will exit investments made now in five or seven years. This is the time horizon in which the CEO must deliver the desired results, and this mindset is different from founders who never build with the end in sight,” Lucie said.
To summarize, the most important quality of a private equity-ready CEO is to feature a great capacity for understanding the motivation of their new stakeholders.
“Yes, they have the company and its growth strategy. Yes, they have the employees. Yes, they have the financial backing and a new owner. So, now all they need is to put it all together to create the biggest value for the private equity investor,” Lucie concluded.
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