In the last six months, we’ve seen world views flipped on their heads; seemingly attractive business models upended; and, as recent McKinsey research suggests, “the pandemic has already altered consumer purchasing patterns and behaviors in deep and perhaps lasting ways.” These are but a few of the casualties of COVID-19 and evidence that – more than ever – context matters.
The variables of value creation are no exception.
As we prepare for the “next normal,” there are deals under protracted LOIs to revisit, opportunities to explore, and critical talent decisions to make. It is all too easy to blame urgency, inconvenience, and Zoom fatigue for shortchanging human capital due diligence. But unprecedented circumstances and uncertainty about the future amplify challenges and blind spots. Now is the time to be even more thoughtful around talent decisions.
Robust diligence focused on organizational fitness includes assessing these value creation drivers:
- Accretive Leadership: COVID has significantly restricted the typical courting activities that precede an investment, making a broader set of data points critical to paint the full leadership picture. By leveraging a hybrid of virtual and in-person touchpoints, augmented with online assessments, Ampersand helps answer your most pressing questions about the target company’s executive team while simultaneously expediting deeper connections with them. This approach also unearths important vulnerabilities at a time when understanding a leader’s reaction to stress has never been more vital. For example, we’ve witnessed a CEO – seemingly perfectly suited for a pre-pandemic investment thesis – overwhelmed by derailers that emerged under the inordinate stress of the past six months.
- Strategic Alignment: Clarity of objectives is but one element of this important value creation lever. There must be alignment on the overarching vision as well as the roadmap to achieve it. The pandemic has toppled even the best-laid plans; strategic alignment for the future must factor in revised targets, the courage to say no to the ideas that could lead the company astray, and prioritize the strongest initiatives. The context for investment is radically different than it was six months ago and so are the capabilities needed to deliver against it. For example, a proactive read of the near-term healthcare industry landscape allowed one client to partner with the portco executive team to transition services to a telehealth model. They were able to quickly recover from the 40% dip in revenue they had seen in March and April. And they are pivoting their acquisition strategy to go after a different profile of distressed assets.
- Culture: The values of an organization and the way things get done tell the story about how effectively the culture enables results. Whether it is the strength of one organization’s culture or the synergies across M&A targets, this less tangible dimension must not be undervalued. We’ve seen the shift to online purchasing and digital service delivery threaten not only the value proposition of deals but also radically alter the efficacy of high-touch cultures that fueled success. Knowing as early as possible if a culture’s unique differentiators are replicable, let alone scalable, informs critical decisions about where and how to invest.
- Partnership Readiness: A vital factor in the viability of an investment, we have seen the concept of partnership fluctuate wildly among target company executives in recent months – from a fear of locking arms at the wrong time/wrong valuation to a willingness to do anything necessary to lure a potential investment partner into throwing a financial lifeline. Assessing true openness for collaboration requires a deep understanding of what is driving the decision to partner now.
While there is no vaccine to inoculate businesses from all risks, “an ounce of prevention is worth a pound of cure.” Rigorous human capital diligence in partnership with Ampersand will position you to get in front of the challenges ahead, entering the “next normal” on solid footing and poised for growth.