Chief Marketing Officers are in a position to thrive under Private Equity (PE) ownership. PE firms engage because they want the upside. Marketing is a key ingredient to revenue generation.
“Private equity is action-oriented and they want someone with a similar bias,” said Mr. Schneider. Private equity firms are incentivized on the upside.” -Antoon Schneider, a partner at Boston Consulting Group
Chief Marketing Officers who help PE firms succeed create a career ladder to success. PE firms go to leaders they trust in future engagements. Reverse any thinking of the PE firms as a threat. They may very well be your golden ticket.
The thing most CMOs fear is Private Equity firm intrusion in everything they do. That’s the wrong attitude and reflects a misunderstanding of PE. No CMO likes being on the hot seat. The hot seat largely comes from not being up to the challenge of growth.
What marketing leaders don’t always realize is the level of reluctance of the PE firm. Most PE firms prefer not to get engaged in day-to-day marketing decision making. They do so reluctantly.
When PE firms aren’t confident in the marketing plan and results, they get engaged. That engagement is pain for the reactive CMO and the PE firm. In most cases CMOs can blame themselves for a painful intervention.
To prove the point, study the exhibit below from a BSG report. Revenue-related topics represents the lowest level of ‘interventions’ by a PE firm.
What’s in it for the Deal Maker from the Private Equity firm?
Success in marketing requires a deep understanding of the target audience. To thrive under Private Equity ownership, study the audience of a PE Firm deal maker. They are responsible for the entire life cycle from offer to sale. Your CEO is most accountable to the deal maker at the PE firm.
The PE firm deal maker wants to be able to sell the company for a large multiple. They want to buy a firm that is under-valued, or one they can improve significantly.
The timeframe is usually five years. Early in the investment the PE firm will typically invest money to grow the company. In the out years closer to the selling window the PE firm wants to maximize EBIDTA.
Meet Chris Stadler from CVC. He is recognized by Forbes as one of the top 20 deal makers in PE.
His claim to fame is engineering the purchase of Pilot Travel Centers by CVC. A 47.5% stake was purchased in 2008 for $700M. CVC sold half their ownership in 2011 for $1B. The remaining stake is selling for approximately $2B. This represents a significant multiple on Pilot’s average earnings. Not bad. Chris was looking for the large multiple and got it.
The Deal Maker Persona wants to buy a company they can later sell for a multiple. Understand this core approach to avoid becoming an emotional infant. Their window for the sale is typically 5-7 years. And they want a LARGE multiple. Embrace this aspect and figure out how marketing will support this effort.
Furthermore CMOs need to understand how the deal maker is compensated. The majority of their total compensation is based on the success of the sale. Their base salary is relatively low. They have a huge upside where successful deals can make them millions.
An action-oriented CMO thrives in this environment. Be an answer and not an obstacle. There is a common time line of activities involved in a PE acquisition. Understand where you are in the journey.
Screening, Due Diligence and Offer
This involves evaluating the purchase, due diligence and then completing an offer.
Once the screening is complete, be ready to play ball. Due diligence is where the PE firm performs a deep dive. They seek to understand the effectiveness of the company, including sales and marketing. They use this to determine a valuation and whether to make an offer.
Keys to success:
- Engage and be available. The PE firm has a fiduciary responsibility to look under the covers. Set aside emotion and play ball.
- Provide factual responses. The PE firm will go deep and ask for things you don’t have. They don’t expect to find perfection. Simply answer, respond, and fulfill with facts.
- Park your ego. Avoid excuses and non-factual comments as these are noise. Keep in mind the PE firm will evaluate marketing against best in class organizations. Gaps will be found.
First 100 Days
Don’t assume this is a honeymoon period after the close of the sale. The PE firm coaches the management team to develop plans that will achieve their goals.
PE firms initiate major transformation to drive the improvement they require. The plan will center on operations, finance, and revenue growth. The planning comes together in a 5 year plan that serves as a road map.
The Chief Marketing Officer has the highest potential to shine in planning.
Keys to success:
- Start Anew. Become emotionally disconnected from past marketing efforts. Understand the new goals of the company and align to those goals.
- Leverage PE Firm Expertise. PE Firms have impressive capabilities and partners to leverage. A smoldering gap in most marketing organizations is accurate sizing of market potential. PE firms excel in this area of market sizing.
- Assess Structure and Staff. Proactively assess your current team’s ability to execute the plan. Analyze the structure and assess your team. Proactively perform this so the PE firm doesn’t have to ask. Don’t delay the inevitable and hurt marketing. Purge any ‘hardliners’ that fight the new direction.
PE firms expect execution against the 5 year road map. Each year involves a plan of action that must be implemented to drive results.
PE Firms value CMOs who contribute to the revenue equation.
Keys to success:
- Stick to the Plan. Execute the plan with perfection by hitting milestones. Don’t change the plan without engaging key stakeholders.
- Quantify Results to Overall Plan. Leverage ProForma marketing planning tools to quantify impact. Avoid showing activities as a result. Demonstrate how marketing is driving revenue (i.e. qualified leads, brand preference, product launch, etc.).
- Be Transparent. Things don’t always go as planned. Focus on learning from any missteps and recommending the course of action. Marketing leaders who cover up lose credibility.
Thrive under PE ownership. Download the full list of 15 Keys to Success for a CMO to Thrive Under Private Equity. Included in the tool will be links to additional revenue generation resources.