Advice for CEOs

Change is hard. If you’ve been through a merger or acquisition, you know how many challenges can arise when you’re going through a transition. And, while it’s imperative that you conduct comprehensive due diligence before you invest in a new company, today’s competitive landscape often requires the completion of due diligence faster than ever before.

Middle market private equity is a topic on which Newport Board Group has deep expertise. Our Chair, Doug Tatum, is Immediate Past Chairman of the Board for the Association for Corporate Growth (ACG), a global not-for- profit organization representing middle market private capital investors, intermediaries and the middle market deal community. Our partners have extensive experience running companies owned by private equity and serving their sponsors as portfolio company operating partners. We know the PE scene very well. But that is only one aspect of our familiarity with PE. We also talk to and serve a great many promising companies that are or could be targets for acquisition by PE. We asked our partners what they hear from entrepreneurs and their investors about PE-- whether or not our partners agree with these views. We got some interesting responses.

Acquisition of a company that can be a platform or foundation to “roll up” or “bolt on” complementary acquisitions is a long standing strategy for private equity and other investors. Technology-based tools and metrics programs to support realizing synergies and economies of scale in these situations are more powerful than they have ever been. Our firm has partners who as executives have executed rollup strategies successfully and are ready to advise others in doing so. Such strategies are particularly promising in market spaces where there is excess capacity due to stagnant growth or even market shrinkage. In these markets efficiency and low operating costs--rather than innovation--is the best path to profitability. There has been a lot of talk that, with deals becoming ever scarcer, private equity firms are drawn to bolt-on strategies. But--what is actually happening in the marketplace? We asked some of our partners to weigh in.

The 100 day plan is an important business process that is central to several specific business situations-- and broadly relevant to others. It is a key step executed by private equity (PE) firms immediately after a close of a transaction. In a very different context, a 100 day plan is also essential to turning around a company that has negative cash flow and is in danger of losing access to credit and even going bankrupt.

In a previous post, I discussed the fact that many private equity (PE) firms are struggling to find promising lower middle market companies to invest in at reasonable prices.

The private equity (PE) industry is experiencing a very challenging investing environment. In simple terms, there is too much money chasing too few deals. Dry powder has soared increasing 13 % since December 2014, according to Preqin.com, rising to a record level of $1.24 trillion in March 2015. This amount has risen every year since 2012. As a result, valuation multiples continue to increase, making it more difficult for PE sponsors to find profitable investment opportunities.