Speed to value—the first 100 days

This is the first of a quarterly interview series for private equity investors and portfolio company managers, developed by AlixPartners SVP Connor Lott. In this article, Connor talks to Partner and Managing Director Burak Kiral about the importance of the first 100 days after acquisition, as a company develops and begins to execute its value creation plan

Burak, thanks so much for taking the time to take us through the first 100 days of executing the value creation plan (VCP). Let's start with planning for that critical period. Dwight Eisenhower once said, "Plans are useless; planning is everything.” How does AlixPartners devise the first 100-day plan with their clients?

Thanks, Connor;  great to be speaking about this important topic. 

The first 100 days play a pivotal role in determining the long-term success of our clients’ investments. This period lays the foundation for the execution of a successful value-creation plan. 

Every transaction is different, but we typically see three major and non-negotiable priorities that require attention from the top during the sign-to-close period to ensure a smooth transition into Day 1, provide for business continuity, and maximize chances of success. 

1. Identifying and placing the right leadership team – people who are  driven, experienced, and committed to the success of the company and all its stakeholders;
2. Developing a strong narrative and communication plan that tells a consistent, coherent, and credible of the choices made and the exciting future ahead of them, together with clearly defined goals to pursue.
3. A bullet-proof VCP with a clear execution roadmap, clear accountabilities, and identified responsibility to execute on time and in full. We typically break the VCP into three categories, all of which are highly tactical, actionable and provide the highest ROI as the primary objective:
   1. Quick Wins and “No Regret” Moves – These are the areas that immediately on Day 1 we can start executing on. A lot of them are cost-oriented, like canceling specific projects, reducing travel expenses, or putting a hiring freeze on open positions. But if you’ve done your diligence right, you will have identified key value drivers for the business and can grab some quick margin and market opportunities. 
   2. Shorter-term actions with significant value creation potential – These are initiatives that probe deeper into the operating model and organization and have significant value capture opportunities. This could include rightsizing the organization through typical spans and layers optimizations, more rigorous negotiations with suppliers, and starting to dig into the cost structure for more transformative moves; it can also involve identifying major working-capital opportunities. In roll-ups and platform deals, this is also where salesforce integration and transformation begins, giving you a chance to increase revenue. 
   3. Longer-term investments and more transformative moves – These are more structural changes and investments that are positioned further down the line in executing the VCP; like creating cost competitiveness, improving sales and operations planning, or supporting growth via initiatives like migrating to the cloud, offshoring, tech modernization, targeting new markets/segments, significant R&D/tech investments, and product portfolio rationalization.

How does this start to come together with management? There needs to be alignment between the deal team, the operating team, your advisors, and the management, so what do those initial conversations look like?

No aspect of the VCP should be a true surprise to any stakeholder, and everyone should be laser-focused on delivering toward the investment thesis, while continuously checking progress and making any adjustments and refinements as needed. I would say that all stakeholders need to understand what value creation means over the lifespan of the investment—not just those quick hits, but the long-term plan. We can illustrate this via an EBITDA bridge over the hold period. By taking management through the major blocks of value creation within the EBITDA bridge and having those discussions we can get the best possible alignment as we are executing and delivering. 

However, we never take alignment for granted. As experienced operators and practitioners, we work alongside sponsors and management teams, provide a clear line of sight and thought partnership, and challenge them when needed to ensure consistent, sustainable, and timely delivery of results. 

How do you measure progress? What gets measured gets managed, so KPIs have to be a vital element in executing the VCP, correct?

Absolutely. The challenge that we most frequently see in the first 100 days is getting the critical targets and KPIs established and communicated across the teams to ensure clear objectives. Financial metrics aren’t enough, because they are not the end goal of driving behaviors and performance, they are an output (lagging indicators) that are measured at pre-defined intervals (e.g., month, quarter, etc.). The leading indicators—the things that make change happen—are behaviors and performance. It's these that we urge sponsors and management teams to focus on. These are things like top-of-funnel lead generation, customer satisfaction indices, etc.—early indicators of performance improvement. Not all businesses may fully know how today's activities may impact tomorrow's results and where that linkage is, so we work with them to diagnose and tailor the most pertinent KPIs to the business at hand. And of course, we work with management to ensure that they are both prioritizing the right metrics, given constrained resources and capacity, while also articulating how their teams should be driving those links to VCP delivery. 

What's the most important aspect of the first 100 days for value creation?

Talent. It has to be talent. Everything really begins and ends with having the right management team in place, having a value-additive board in place, and ensuring that everyone is calibrated towards achieving in the areas that underpin the VCP. Using the first 100 days to get insight on specific members of management, whether individuals have a growth mindset or value-creation mindset, whether they can “talk the talk and walk the walk”—that’s critical. 

We did work with a medical devices company where the head of supply chain was very ambitious and driven, energized by the prospect of addressing manufacturing footprint optimization and resetting certain vendor relationships—so we put him on the workstream with the CEO to go after value creation in the supply chain. Well, it only took a couple of weeks for us to realize that those ambitious plans didn't have much substance behind them and likely would not meet the timelines initially established, so we had to consider whether this person was the right person to lead that function during a time of transformative change. It's important to test drive if possible and see what discrepancies might arise in terms of leaders and their capabilities and motivations. 

It also sounds like between measuring progress and people, the governance structure is crucial to get right in those first 100 days.

A common mistake in the first 100 days is to not have the right governance structure in place, whether that's a Transformation Management Office (TMO) or Integration Management Office (IMO), that has to be guard-railed and driven by that function to connect all pieces of the puzzle. The lack of a strong TMO or IMO will create a large amount of risk in the overall success rate of the VCP. 

We believe TMO/IMO is the lynchpin between sponsors, accountable management teams, and the broader organization that is responsible for the execution/delivery of the VCP, while ensuring business continuity. In that regard, we believe TMO/IMO can/should focus on three key areas:

1. Ensuring consistency, clarity, visibility – Teams and individuals should begin to speak the same language, have expected clarity on cadence and governance along with visibility to leadership, so that decisions are made faster, and work is completed rapidly;
2. Remove/reduce uncertainty – If everyone knows what they are doing this week, next week, and a month down the line, that helps keep engagement up and keep people motivated during a time that can be fatiguing;
3. Upskilling – When people are working with a transformation office that’s constantly questioning the way work is getting done, people begin to think more critically and challenge their way of working. This constructive challenge trains them to be more resilient, deal better with setbacks and figure out how to pull something forward or to solve the problem.

Finally, another area of governance that we keep a close focus on is overall business continuity - especially if we are working with a serial acquirer who might be doing several integrations. It may not matter how well an integration goes if the normal course of business suffers. A drop in topline revenue or increased customer or employee dissatisfaction can be stubbornly persistent, and it won't matter how well a company planned for synergies if that business continuity is disrupted. 

Burak, this has been great, thanks very much for the time and tremendous insights. Here’s to 2024!

Thanks Connor, glad to share some thoughts and looking forward to bringing these concepts to life for our clients this year!