You know the discounted cash flow valuation. Have you evaluated the financial cost of losing 6 to 12 month growth in the companies you acquire? If you are 10 or 20% below objectives the first year, you can lose between 20 and 50% of your exit price.
Usual facts :
When a VC acquires a company, it happens most often than not that both parties (buyer and seller) experience a “post acquisition hangover”. Even if the seller remains a shareholder.
What does this mean?
- A lot of physical, intellectual and emotional effort is involved in a deal. It is absolutely normal to feast the deal and then go to earn a well-earned sleep for some hours…
- The day after, energy is often low, and in the first weeks, the VC starts to implement reporting channels and reporting tools. Not willing to destabilize the business, the first period is quite “hands-off”.
- The seller and eventually his management team, who are exhausted by the process, have somewhat lost direct contact from operations during the deal and must at the same time adjust to their new position and role.
- After some weeks/months, the VC sees the results follow a lower curve than the expected forecast. Meetings, tension follow. The first difficult time in a couple is a confidence-test. So no harsh decisions on first feelings are made, especially as the VC managers are not always sure of the origin of the problem.
- Time is lost, between 3 to 12 months on average, before dialogue and actions are aligned between VC and management.
- On a deal where the average exit is after 5 years, and where value must increase exponentially with the years, one year lost can signify 50% lost on final value.
THIS IS AVOIDABLE
Objectives of the cure
- Avoid the post acquisition dip
- Inject positive energy in the partners and between the partners: create an ALLIANCE.
- Improve communication between the new investor and the management team.
- Prove the added value of the investors, their professional approach of a real partnership
- Improve operations.
- Help detect the quality of the management team, and inform the VC on possible / necessary improvements or changes.
- Set up effective and efficient reporting, useful for the management team and compliant with the demands of the VC.
- Secure the investment.
How it works
Services that Arrowstone can provide
1 – Executive Search or Interim Management:
From the start, it is clear the General Manager wants to quit at short/medium notice, or must be replaced. Or major top management & business development management functions must be filled in.
Arrowstone will prove a competitive business partner to help find qualified and over-performing managers, interim or permanent.
This manager will have an in-depth knowledge of the sector; will be an experienced general manager with real familiarity with SME or family-owned businesses, and also experience of the expectations and working of private equity. A real hands-on man with a strong strategic ability.
Arrowstone will provide effective “shadow management” and technical support to optimize success
2 – Coaching of the post-acquisition transition phase:
Top management is efficient and motivated to continue the project. This is an assumption that must prove right in the facts.
The acquisition is also often the result of the feeling of the seller having reached some of his limits, in management, sales, finance or other areas. But a feeling is not always conscious, and consciousness is not always acceptance…
Arrowstone therefore proposes to put in place a “coach” from day one.
The idea is to have an experienced coach with manager experience acting as “challenging partner” and “liaison officer”.
His involvement can be full-time or part-time.
3 -Providing quality Board Members :
Building a quality Board, Statutory or Advisory, is key to orient and support the Executive Management. Arrowstone has a broad expertise in providing the portfolio company with Non Executive Board Members with strong market experience, strategic insight and international contacts.
4 – Assesment of the Management Team
Arrowstone proposes also Assessments of the Management Team, based on state-of-the-art methods who assess the actual management level, the potential of the managers and the team dynamics.