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A deep look into an acquisition target revealed cracks that were less evident in early diligence.

A technology-focused PE firm engaged with Ampersand to conduct due diligence on a potential investment. While prior knowledge of three co-founders existed within the firm – and the deal was all but signed – investors wanted to truly understand what they were buying and have a firm grasp of capabilities and the gaps to close as they ramped up the partnership. Relationships with the founders were going to shift with one exiting the business post-close, one taking a Board seat, and the other taking the reins as CEO.

Confronting the challenge: What we knew 

With a history of consistent growth, and coming off an extremely successful transaction, the organization was embarking on its next chapter with new investor-partners who were markedly different from their last at-bat with PE. A deep look revealed cracks in the foundation which were less evident in early diligence. Change management would be a tricky balance, and there was unanimous determination among leaders to retain elements of the legacy culture.

The long-tenured founder who remained and was running the shop was toxic; notorious for withholding information, becoming defensive, and alienating and holding back the high-powered talent beneath him. He was respected for his history with the organization, but his impact was no longer positive. A cohesive strategy was missing, and the business had reached a critical point where a shift from services to technology was needed to move to number one in the market and achieve the new partners’ investment thesis.

Ampersand’s approach

Ampersand uncovered data which the investors could not through an objective, proven Organizational Diligence process. We brought areas of misalignment to light and captured the executive team’s vision for the organization’s future.

Discovery: What we found

There was much to like about the company: their reputation for top-tier client service and long-term industry relationships differentiated the business and were points of pride. But while the laid-back culture was a selling point for many, all were not being held accountable, and leaders would backslide into defensiveness and finger-point instead of addressing root causes. 

It was clear was that the organization needed a defined executive team. Lack of clearly laid-out roles and responsibilities was enabling the existing unsustainable structure and absence of strategic leadership while stalling decision-making. And strained relationships at the top were due mostly to a lack of communication, hindering progress. Upgrading the CEO role in the near-term was a must-do.

An underdeveloped Sales function and confusing structure in the commercial support functions (e.g., Marketing, Product, Customer Service) were significant barriers to execution and growth. A solid strategy and strong leader (through a commercially oriented CEO or CRO) was needed. Additionally, there were needs to align the org structure with the strategy; to make key hires in IT, HR, and Corporate Development, and to empower those leaders to professionalize the functions.

Outcomes: What we contributed

  • Revealed the disconnect between reward/recognition and the strategic goals of the organization; helped establish role clarity so that specific, strategically prioritized accountabilities would be incentivized and championed appropriately.
  • Recognized and galvanized the next generation of leaders; built up existing, high-potential talent and generated excitement for a new reality under an externally hired CEO.
  • Streamlined the reporting structure for clarity and efficiency.
  • Facilitated and enabled the delivery of tough messages and pointed out where to expect pushback and how to best partner, allowing the PE firm to be transparent and establish a strong relationship right out of the gate.
  • Identified the expertise and experience that must be represented on the Board to best mentor and influence team building, strategic thinking, and decision-making.
  • Served as the sounding board for investors looking to exit the current CEO/Founder carefully due to the nature of his tenure and impact.
  • Investors and the Board agreed on the future org structure, new role creation, and needed talent upgrades. Ampersand diligence a number of C-suite candidates and a dynamic, experienced CEO is now in place.

Hope springs eternal – the executive team is committed to growth and ready for an engaged partnership. They are well on their way to embracing the degree of transformation required to position the business as market-maker, not follower. As a result of our feedback and action planning, leaders made significant improvements in teaming, relationship-building, and a number of critical foundational executional elements.

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.