I was talking with the founder of a private equity group, we got on the subject of management in the companies they’ve acquired, and he said the following to me:
We’ve never worked with a firm where the owner had built a strong enough management team to have that management team run the company after we’ve bought it.
He went on to say it’s rare, very rare, when the owner is capable enough to stay on in upper management and add value as they scale the business (keep in mind, their model is to grow and grow fast). In other words, they go in to every deal knowing they’ll be bringing in new management (and having the cost and disruption associated with the new team).
So what about smaller companies, not private equity targets? Let’s just say the private equity targets do a better job than smaller firms. Bottom line, the vast majority of privately held businesses don’t build an infrastructure of people. They may have great machines, dynamic marketing, and solid processes, but lack depth when it comes to upper level people. It’s so common I’m sure there are books about why this is.
It’s tough to let go, I know firsthand. But to grow you have to shed responsibilities. For owners wanting to exit and sell for maximum value, the less they do (day-to-day) the better.
“There is no situation so bad that it can’t get worse tomorrow.” (British lawmaker) Damian Green
