Experienced private equity managers with a proven track record do not soley rely on value creation by using the levers of deleverage and multiple expansion.
In crowded markets with too much money and dry powder with too many private equity investors looking for few deals, and high deal multiples it becomes more and more challenging to satisfy the high expectations of LPs for higher returns.
In addition, the global coronavirus pandemic has created substantial barriers to deal execution, financing, valuations, and exits.
At the same time, a more active ownership support is required by the private equity managers as many portfolio companies have suffered an economic hit from the coronavirus–led recession.
In the next normal, PE managers must readjust their focus and define their priorities on actions to support and manage their portfolio companies. Nearly every business is experiencing permanent changes in demand patterns and have to adjust their business model to the new normal. Many portfolio companies require additional financing while exit windows appear to be temporarily closed.
In the current situation, PE managers should consider to take advantage of highly experienced interim management resources on executive level to better manage the economic impacts from the COVID-19 pandemic at their portfolio companies:
- Stepping in to temporally fill Chief Financial Officer, Chief Executive Officer, Chief Operating Officer or Chief Procurement Officer roles for operational and hands-on support as interim managers on top management level
- Staffing of immediate critical senior management positions in special situations and restructurings as Chief Restructuring Officer
- Execute value creation and transformation programs for improving cost efficiency and downsizing/ rightsizing (e.g. overhead costs, supply chain costs, operations costs)
- Generate additional top line growth (e.g. developing new digital business models, acquiring new customers in Germany and abroad)
- Improve cash flow (e.g. executing working capital reduction programs)
- Prepare portfolio companies or carving-out/ spinning-off business for exit
But how do you know, which interim manager profile best fits to your portfolio company and the situation? The following checklist will help PE managers to select the right interim manager:
Checklist for selecting the right interim manager:
- Is the potential interim manager familiar with the culture of a PE fund and PE owned portfolio company?
- Can the interim manager demonstrate a proven track record for the specific situation the PE manager is looking for (e.g. for restructuring and turnarounds, corona crisis management, international expansion, performance improvement, exit support, post merger intergration, close-down or ramp-up of production sites) as an executive board member (e.g. Managing Director or Member of the Executive Board) of a PE owned company?
- Can the interim manager provide references as Chief Restructuring Officer, including references for successfully negotiating with banks, lenders syndicates, workers councils and unions, customers and suppliers?
- Can the interim manager provide hands-on execution support instead of just deligating taks to the second-line management and staff of the portfolio company?
- Has the interim manager a track record in implementing actions, even against an opposing force (e.g. incumbent management or the workforce) resulting in higher profits, additional cash-flow or higher revenues?
- Does the skill set of the interim manager include operational, financial and strategic know-how?
- Does the interim mamager possess sufficient communications and facilitation skills for managing and balancing out different stakeholder interests?
- Is the interim manager capable of creating trust between between the shareholder and/or management and its financing creditors?
- Has the interim manager the soft skills and ability to motivate, enable and commit others to contribute toward the attainment of collective goals in a change or crisis situation?
- Provides the interim manager industry specific knowledge and a network to potential customers or suppliers?
„Private equity firms are temporary owners.
Interim managers are temporary managers.
EIP’s interim managers provide a solution in special situations
that require immediate action and short-term, measurable results
with high impact on the P&L, Cash Flow statement and balance sheet.“
Our EIP professionals are considered to be amongst the leading and most experienced interim managers for private equity funds. About 80% of our customers are leading private equity firms who rely on EIP’s interim management services.
Please contact our EIP partners, Michael Hengstmann and Michael Hessing, for further information or for supporting your PE portfolio companies.