Executive Insights
My Keys to Portfolio Management
Outlined here is my guiding philosophy and the key lessons I ascribe my success as a private equity turnaround expert.
1.
Executive Insight
Clear Goal & Vision
Leading a private equity portfolio company is unique. It requires a unique pace, unique vocabulary, and unique metrics. Most important is to understand that private equity firms don’t buy companies because they want to own them, but to work to sell them. The sooner the company sells, assuming achievement of the desired exit multiple, the sooner they can re-deploy the funds into future investments.
For the leader, there are no days off—every day is the Superbowl. It’s critical that the leader understand the nature of the role. From the moment a PE firm closes an acquisition, it’s seeking the sale of that investment, for the best possible return for its shareholders. The goal must remain in focus and all activities aligned to that achievement.
2.
Executive Insight
Time Matters
It’s also critically important that the leader appreciate the component of time. Per the Association of Capital Growth, the typical hold period for a private equity portfolio company is 4-6 years. This drives several decisions, such as payback period for a capital investment. In a closely held or public company it’s possible to justify a payback period of 5-6 years; not so in a PE portfolio company.
3.
Executive Insight
Leverage & Cash Management
The most critical component of successful PE portfolio company management is leverage and cash management along with the perspective of lender relationship and management. A portfolio company often carries debt equal to 4-5 times the amount of equity dedicated to the transaction. There will be covenants applied by the lender, although “covenant light” transactions are becoming common. Skilled, attentive cash management principles must be adhered to, and a well-qualified finance professional is an absolute requirement.