An attractive deal came with a challenging set of dynamics to work through before accelerating its growth.
A longstanding private equity partner of Ampersand’s known for their strong point of view on how to build great companies was considering a rather attractive deal. With a recurring revenue model, the global business being targeted for acquisition boasted consistent annual revenue growth over its 30+ year history to an impressive $275M with EBITDA of $35M.
Confronting the Challenge: What We Knew
Concerns about talent, culture, and an intractable founder swirled, and Ampersand was brought in early; the conversation began with: “We know it’s bad, we just want to know how bad.”
Ampersand’s Approach
We employed a two-phase approach over the course of a year; first helping our client understand what they were buying, and then helping them fill identified gaps with top talent post-close. During the first phase, we employed an Organizational Diligence with members of the management team and Executive Diligence with the COO and Head of Marketing.
Discovery: What We Found
Our process brought to light much of the team’s dysfunction: autocratic leadership, a conflict-ridden culture that led to employee frustration, nepotism, and a lack of professionalism that created exposure for investors. Finance needed an overhaul, Sales was underperforming, and HR was nonexistent. A number of ‘pet projects’ with poor ROI were draining resources. Bright spots included the recently hired COO, who was exceptional and had to be retained, but wasn’t quite ready to be CEO.
Our diligence also helped ease investors’ fears that exiting the founder would bring about significant turnover; in fact, his leadership was a serious barrier to growth. In the second phase, we assessed multiple candidates for the C-suite, resulting in the hiring of A-players in three top roles.
Outcomes: What We Contributed
- The founder/CEO’s expectations for involvement going forward were clarified. Because he was ambivalent about letting go, we offered suggestions on how to help him step aside (without endangering the deal) and how to work with him as a Board member.
- Investors parlayed the feedback into immediate action, expediting the search for a CEO and CFO before the deal even closed. An experienced operating partner was brought in as interim CEO on day one to act as a guardian.
- Executive Diligence revealed two tempting but ill-equipped CEO candidates. Holding out for a rock star, the investors have watched the organization flourish under a seasoned pro.
- The high-potential COO was given more equity than he expected, sending a clear message that he was valued. He was informed that the soon-to-be-hired CEO would be tasked with mentoring him to prepare him for future promotion.
- A fragmented business structure and a lack of an enterprise-wide strategy was exposed; addressing these weaknesses was made first priority post-close.
- Reporting relationships were defined, decision-making processes put in place, and a healthy partnership was accelerated between company leaders and investors.
- Quick action energized the leadership, now equipped with a strategic roadmap to follow. With Ampersand’s support, investors and the new management team are successfully driving toward their shared goals.
Our commitment to confidentiality prevents us from disclosing the identity of our clients and other confidential information. The information contained in this case study is not intended to serve as advice.
