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Top 15 PE CEO Lessons from 2015 Exits

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Each spring, we at BSG assemble an august panel of private equity-backed CEOs who have exited their businesses in the last 12 months.  The goal? To "share it forward" with other current and future CEOs as they buy, build, and exit their own companies. 

Below is this year's 2015 vintage of wisdom.  This year we had the privilege of having 3 CEOs on the panel, including Peter Segall, recently CEO of HealthcareSource (https://www.linkedin.com/in/psegall), and Gordon Raskin, former CEO of Archive Systems (https://www.linkedin.com/in/gordon-rapkin-7aba8).   Amy Margolis of Riverside Company (https://www.linkedin.com/in/amy-margolis-38805211) also joined the panel to offer the macro view from the PE perspective, framing 2015 and the prevailing head- and tailwinds private equity-backed CEOs faced in exiting their companies in this time window.

A note about BSG: We generate and curate collective wisdom like the below as we believe our role as executive search consultants isn't just finding the next star executive talent to round out a team or board, but to serve as information connector and conduit between all executives who power top quartile performance.

For our 2014 vintage, see http://www.bostonsearchgroup.com/blog/top-10-lessons-learned-in-selling-your-company-private-equity-backed-ceos-share-their-stories/.

The Top 15 of 2015:

1.The minute you take institutional money, you are for sale. Think and act like a grocery store – “best if sold by...” Have a clear alignment with investors about timing and expectations.

2.Develop a "sounding board." This board is comprised of a diverse network of confidantes--other CEO's with exit experience, bankers, investors, etc.. You need to nurture an objective and up-to-date viewpoint on market conditions, industry specific buyer hot buttons and trends in M&A.

3.Get to know potential buyers – date before you try to get married. Carve out a little time in the years before the process to informally get to know the potential buyers, so they are not meeting you for the first time during the process.  You will need a rapport with the buying CEO in order to get the deal done.

4.Don’t let the business tank during the process – good news keeps the momentum going; bad news opens the door to re-trading

5.Put your house in order ASAP – audits, legal, tax, tech, etc.

Get an awesome CFO as early as possible

Always be preparing for the exit – start a data room and keep it up to date

The CEO becomes irrelevant at some point during the sale, so you have to be able to trust and rely on your CFO. If you can't, see (a) above

6.Make sure your key financial, customer and business metrics are tight:

Clearly defined, supportable by the detail – if anything is squishy, fix it. Confront reality and make sure your board/investors are all on the same page

You are what your record says you are - Bill Parcels

Face reality as it is, not as it was or as you wish it to be – Jack Welch

Hire a banker that knows your industry and has good chemistry with you.

Never look like you have to sell. Be willing to walk away from any deal that isn’t good.

Be the lead advocate for sweating down the transaction timeline. Time usually doesn't help processes, valuations, or, most importantly, ongoing mission focus.

Question "rules-of-thumb". Investment bankers and potential investors will arrive with plenty of them: Valuation comps, average revenue multiples, EBITDA multiples, management ownership shares, return thresholds for performance shares, rollover percentages, vesting time frames, etc.. All of these are ripe for investigation and scrutiny. Understand the full spectrum of possibilities, your unique story and place in the world, and where you can push and where you can't.

The transaction is a point in time event. You have fiduciary responsibilities to ownership/investors (and likely are included in one or both), but you also represent management and the ongoing entity. Being true and highly focused on your mission (business) rather than a transaction will paradoxically serve you well in maximizing value in a transaction.

Investors aren't paying for what you've done, they're paying for what you'll do. Constantly work on your story telling and make sure your story is cohesive and compelling and reflects the "connectedness" between the things you've built (team, infrastructure, organization, products, client relationships, etc..) and the future opportunity. This should appear seamless. A never-ending story.

Think about keeping everyone in the loop instead of in the dark as you approach a transition. If you remain focused on "thinking forward" about what the future growth of the business will be, often a transaction isn't cause for concern. It's business as usual and everyone knows that mission focus is key, not a potential transaction. Employees are pretty smart anyway. They'll find out on their own and create their own narrative if you don't. Keep the deal team as small as possible to tell your story in a compelling way, and keep everyone else "informed, but mission focused."

Employees deserve answers to 4 questions the minute they hear about the deal:

What is my job?

Who do I work for?

What am I paid?

What do I need to do to succeed?

Manage your stress. Take care of yourself during the process. Take up yoga (for insights), boxing (for "negotiation skills" and outlet for frustration) and triathlons (for endurance). You'll likely need all 3 sports to make it over the exit finish line.

This article was published on linkedIn


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