How private equity firms use team and leadership assessment to strengthen portfolio companies
Smart private equity firms know that the key to a successful exit lies in positioning people to win.
Ott Niggulis
The acquisition of a company is a time of heightened activity and elevated stress. The private equity firm wants to make sure that the new asset meets key milestones as quickly as possible, while the team at the acquired company may be wondering if and to what extent their culture will change.
This article illustrates how team and leadership assessment can make for smoother integration and a stronger team. It also demonstrates how PE firms are using Wisnio for hiring, succession planning, and to develop the leadership teams of their portfolio companies.
The path to a profitable exit starts with valuing a company's team
Team members at a recently acquired company may be anxious as they expect the transition to result in job losses (on average, private equity takeovers can result in nearly 5% job losses within the first two years of acquisition). To mitigate that risk and reduce that anxiety, leading PE firms put a lot of effort into understanding the existing team's competencies and developing a succession plan and L&D strategy that would help the existing team perform at their best.
Data has repeatedly shown that firms can vastly improve the opportunity for a profitable exit by fully recognizing the value of an existing leadership team and by conducting a structured leadership assessment.
In analyzing the success of Wisnio's private equity and venture capital clients, data has repeatedly shown that firms can vastly improve the opportunity for a profitable exit by fully recognizing the value of an existing leadership team and by conducting a structured leadership assessment. In particular, a rigorous leadership assessment in conjunction with a full team assessment should be given just as much weight as other types of analysis (financial, operational, and competitive) undertaken to construct an acquisition deal.
A team and leadership assessment is an invaluable investment
A portfolio company's leadership and team dynamics have a strong correlation with its upward growth and profitability. Yet, PE firms consistently fail at making early and positively impactful adjustments to a team's talent pool. While rigorous analysis is applied to a company's financials as a matter of rote, team analysis, and hiring or firing is often based on soft data such as "likability" or "intuition."
The use of a structured leadership assessment and team assessment process to talent-match and fill team gaps is a critical feature shared among top-performing private equity firms. Antithetically, a PE firm being too slow to correct poor leadership or adjust a mismatched team is cited as one of the top three reasons acquired companies fail.
"The ability to identify real team values and check that the team is on the same page with those is of utmost importance to us. Wisnio helps us see on a factual basis who best fits our team in the long run."
Margus Uudam - Found Partner, Karma Ventures
A company's existing team is an invaluable collection of knowledge and ability, and reasonable care should be taken to preserve it. Conducting team and leadership assessment demonstrates a private equity firm's commitment to the company's success and its human capital. It also provides a PE firm with the data needed to carefully and intelligently make changes.
Lastly, team and leadership assessment should be viewed as an incredible opportunity to jumpstart a company's growth using existing resources. Following a proper analysis, a PE general partner will have a clear and objective view of team strengths and weaknesses. The firm will be able to effectively reorganize people and responsibilities, uncover underutilized potential, and nominate promising candidates for future leadership roles as part of a succession planning strategy.
To learn more about Wisnio and how we can help you build high performing teams, sign-up for a free account here.
Succession planning as an integral part of the team-building process
Succession is a delicate topic; however, with CEO turnover averaging 73% among portfolio companies, it's a required part of building a stronger, more effective team. It's commonly assumed that private equity firms summarily replace the CEO after the acquisition, but a Bain & Company study shows that in 60% of cases, the exit of a CEO is not planned.
With the average time to exit spanning four to seven years, succession planning acts as an insurance policy against an unforeseen loss of essential leadership and adds additional value for future buyers. Team assessment and leadership assessment go hand-in-glove with developing a succession planning strategy since the early discovery of promising talent allows for pro-active training and preparation.
Team assessment and leadership assessment go hand-in-glove with developing a succession planning strategy since the early discovery of promising talent allows for pro-active training and preparation.
Traditionally, succession planning takes 12 to 36 months and concentrates on preparing a team member solely to fill a vacancy. Often, the candidate is chosen out of convenience or proximity to the position vacated. This approach often lacks a focus on matching a team member to the role based on innate talents, desired career path, and personal compatibility. Additionally, the timeframe doesn't allow for quickly finding the most compatible people.
When conducting team assessment and succession planning, top private equity firms find Wisnio a perfect solution for getting the job done.
Learn more: A guide to succession planning
How private equity firms use Wisnio to build strong teams
Wisnio is a talent analytics tool that takes the guesswork out of team building. In many cases, teams are pulled together based on convenience, exaggerated resumes, and personal biases. Poor hiring decisions can lead to weaknesses within a company that negatively impact growth and disrupt operations for years.
Traditional hiring and team-building methods have inherent tedium that translates into time loss to cumbersome vetting and training processes. What hiring managers need is a dependable and repeatable way to select highly qualified people who are both competent and motivated to do their best work.
PE firms love Wisnio because the platform fills this need perfectly. By using scientifically-backed profile questions and big data analytics, our platform makes hiring and placement fast, productive, and profitable.
Our PE clients use Wisnio to:
- Visually analyse the strength and weaknesses of existing teams
- Identify gaps and opportunities for improvement
- Engage in higher quality candidate interviews
- Conduct more effective succession planning
- Use data-backed insights to set learning and development goals for team members
- Hire candidates that complement the existing team and enhance its cognitive diversity
- Smoothly onboard new team members and build cohesive teams where everyone can perform at their best
