The Urgency of Effective Leadership: Maximizing Performance in Private Equity and M&A Investments

27 Jan The Urgency of Effective Leadership: Maximizing Performance in Private Equity and M&A Investments

The Value of Accelerated Executive Assessment and Developing a Leaders’ Playbook.

In the fast-paced world of Private Equity (PE) and Mergers & Acquisitions (M&A), the right leadership team can make all the difference. However, waiting for existing managers to perform and transform simultaneously can be risky.

Investors continually seek methods to mitigate investment risks. While investment firms have traditionally excelled in financial due diligence, they’ve lacked an efficient process to promptly evaluate a company’s leadership team’s adaptability to dynamic market shifts. Insights from leading firms observing the rapid expansion of the Private Equity (PE) and Mergers & Acquisitions (M&A) sectors over the past decade reveal a less-than-favorable scenario.

• Forbes estimates that half the time portfolio firms fail to achieve returns investors expect, its due to the wrong leadership running the companies.
• Bain states that ninety percent of the time at least one member of the executive team left or was exited from the portfolio company within the first year of acquisition. McKinsey also found that changes to the leadership team often occur twelve to eighteen months after an acquisition.
• Boston Consulting found that nearly half of the owners changed the CEO’s. In 60% of the cases this was not planned at time of acquisition.

Based upon years of leading prominent Canadian and US corporations through successful turnarounds, Stone Management Partners’ Garry Wood and John Scheel are convinced that a company’s leadership and team dynamics have a direct correlation with its upward revenue growth and profitability. It is a proven fact that cohesive leadership teams are more likely to achieve above average financial performance. In fact, high-trust teams report less stress, higher engagement, and 50% higher productivity compared to low-trust teams.  (Harvard Business Review 2024), cohesive teams are 21% more profitable, and they also exhibit 20% more productivity (Gallup 2020).

To address the need for active leadership from day one, the Stone Management Partners have developed a program that accelerates the assessment of the leadership team and reduces that timeline to under six months.

This program focuses on three critical steps.

1. The Art of Listening
   The team and individual assessment process begins with understanding the goals the PE or M&A firm has for its portfolio company. The importance of ensuring goals is aligned between the leadership group and the PE firm cannot be overstated as it is the most critical component of success. Unfortunately, far too many PE firms and their portfolio businesses fail to operationalize around common goals.  Listening is the key to understanding if the team is aligned.
2. The Science of Assessing 
   The next step in the approach includes examining both the team and the individual from a variety of angles and drawing on the depth of leadership experience and perspective our principals share with clients. The approach includes examining both the team and the individual from a variety of angles and drawing on the depth of leadership experience and perspective our principals share with clients. This method entails delving deeper into the motivations behind the actions of management teams or individuals. Additionally, it incorporates psychometric assessments of both the team and individuals, pinpointing future CEO potential within the leadership team. Assessing the potential gaps in the leadership team and their ability to execute the strategic plan is clearly identified.
3. Building a Playbook 
   The final step is building an operational playbook. All the necessary information for positive and effective action is captured in a “Leaders’ Playbook”. It defines how to improve performance and change ineffective leadership practices. Meaningful value creation can only be achieved if the team is aligned, the right executives are in place, and there is a plan to address existing gaps. The Leaders’ Playbook is supported by a series of in person visits by the Stone Management team to ensure the plan is being followed, remains active and does not become shelf bound or static.

Having a deeper understanding of both the executive team and individual leaders within a company enhances the management of issues and fosters improved outcomes. Conducting an assessment of the leadership team promptly facilitates the creation of long-term value at a quicker pace. With Stone Management Partners’ expertise and insight, we provide a leadership playbook capable of guiding your executive team through transformation while delivering optimal performance for your organization.

Let’s Connect

We help firms accelerate the assessment of the leadership teams of their portfolio companies. Grounded by years of hands-on operational experience, we understand the dynamics of building high performing teams.  We’re personal, practical and our work is founded on the belief that incredible businesses are built by incredible employees.

Let’s talk about how we can help you.

John Scheel & Garry Wood
Stone Management Partners