Picking the wrong leader can cost you your investment

April 15, 2015
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Private-equity firms know how to analyze balance-sheet data during due diligence and post-acquisition planning. But they should assess additional critical success factors with equal rigor—such as quality of a portfolio company’s leadership and culture. When these are right, portfolio companies excel and ultimately fetch a great sale price—enabling the PE firm to invest in the next opportunity.

At a glance

  • To assess a newly acquired portfolio company’s CEO, PE firms must clarify the specific outcomes that he or she will be accountable for in the next one to three years.
  • They must also assess the top executive’s personality, motivations, cognitive abilities, business acumen, experience,performance, learning agility, and potential for growth in the future environment.
  • They should use similar criteria to assess the people reporting to the CEO—with a focus the executive team’s structure and how strongly its members are aligned behind the company’s vision, mission, and values.
  • In addition, PE firms must assess how well the portfolio company’s culture—including communication and decision-making patterns—aligns with the business strategy.

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