In every acquisition, there are two distinct phases: Sign-to-Close and The First 100 Days. Where PE firms go wrong is that they don’t separate goals between these phases.
Read on to discover how to align your investment hypothesis or deal thesis with these two distinct phases — and learn how to create clear goals to avoid costly missteps and realize quicker revenue growth.
Hit the Ground Running During Sign-to-Close
During the sign-to-close phase, the PE firm follows the due diligence process. The letter of intent is signed, but the deal hasn’t closed.
Your most critical goal during this phase should be preventing customer and talent attrition.
During this period, customers are nervous. They wonder if the company will continue to invest in product development. They are concerned that the company might not continue to focus on customer support. They feel uncertain about the new owner’s intentions.
Competitors will recognize this customer uncertainty and capitalize on it. They will hone in on the company’s key accounts. Meanwhile, customers may see this as an opportunity to reevaluate their vendor relationship.
Top Talent Uncertainty
During this period, your top sales talent is also feeling uncertain. They see that every dollar is being analyzed. They wonder if the new company will change their salary or quota. They are concerned that new sales territory mapping will affect their job.
They may take this opportunity to consider a career move outside the company. But keeping top talent is critical to the new company’s revenue goals. Backfilling an “A” player’s slot is incredibly difficult and expensive.
Keep top talent by communicating your plans clearly and frequently.
Take a look at our Talent Retention Checklist to review several key factors for top talent retention. This tool is particularly useful for keeping top sales reps after an acquisition. You can download the Talent Retention Checklist here.
What the New Ownership Team Can Do:
Prepare the management team for success in the sign-to-close phase of an acquisition. First, align with the investment’s growth priorities – then over-communicate them with management.
- Understand the growth priorities from the deal thesis. What was the purpose of the acquisition? To gain market share? To have more pricing power? To increase cross-sell and upsell opportunities?
- Make a sales and marketing pro-forma plan. Decide what numbers you should expect from the sales and marketing categories. Where is the revenue growth going to come from?
- Build a sales execution plan. Decide on staffing levels, account assignments, a detailed marketing campaign schedule and new territories. Determine customer segmentation and channel partner alignment.
- Create a KPI (key performance indicator) dashboard. Agree on the metrics you will be tracking and how they will be tracked.
Now communicate this clearly and frequently to the management team. When communicated, all of this information can help lower customer and talent defection.
Post-Close Success in the First 100 Days
In this phase, it is crucial to start out on the right foot. The environment is still tense. Customers and employees are still in wait-and-see mode. A wrong move can derail your investment success.
There are lots of “firsts” during the first 100 days after an acquisition. There will be a new Monthly Operating Review (MOR) with a new board. There will be new advisors on this new board and a new organizational structure. There may be a new agenda for the company and a new cadence. Major stakeholders will get their first impression of the new company.
The most valuable thing you can do is to establish a Project Management Office.
Bring the rigors of a project management system to the first 100 days. Treat this time period as a project with sub-projects. Project managers will get things get done on time and on budget. They will run monthly and quarterly business reviews. They will also ensure that projects get completed with the highest quality.
- Based on your deal thesis, decide on the sub-projects of company transition. Will you increase gross margins (EBITDA)? Will you create more intelligent pricing to increase demand? Each of this is a project for the Project Management Office (PMO).
- Determine roles and responsibilities for each project. No matter how critical the project, you must define these with the PMO. The project manager must have clear goals and a team for each project.
- Define work structures for each project. The PMO will guide this part of the process, but your involvement is important. It is your responsibility to ensure the investment hypothesis (or deal thesis) is considered.
Without a PMO in place, costly missteps will happen. Schedules will slip. Costs will balloon. There will be tension between the new owners and the management team. Prioritize the creation of a Project Management Office during the first 100 days.
Post-Acquisition Success Starts Here.
Acquiring a new company is a sensitive process. Start with a clear investment hypothesis in mind. Only then can you eliminate redundancies and quickly grow revenue.