Stanton Chase: Do You Invest in People or Companies?
As the saying goes, a Private Equity investment is like a marriage. There are many steps to take in order to build a strong foundation and to be aligned for the future. Private Equity investors and leaders strongly depend on one another to achieve returns and value within an agreed period of time; if the arrangement proves unsuccessful, either party might find themselves breaking bonds in pursuit of greater rewards.
When a Private Equity (PE) firm invests in or acquires a company, it needs to have a deep understanding of the company and its structure. The firm needs to know the customer landscape, the financial details, the industry, and upcoming trends and challenges.
But with whom do you finally ‘tie the knot’? Probably not with a detailed spreadsheet or a fancy product. You will say ‘I do’ to the people who will execute your vision and put your strategic plans into action. Therefore, a careful evaluation of the human assets not only during the diligence process (buy) but also post-investment (build, bind) is indispensable; without it, even the best formulated plan can fall apart even before you start creating value.
The notion of a rise in the importance of human capital in the PE industry is not new, but it is gaining traction. In August 2017, Harvard Business Review published “PE Firms are Creating a New Role: Leadership Capital Partner.” The authors outline what we see in our daily work in PE executive assessment: namely, leadership is as important as financials.
Stanton Chase offers this outline of Top 5 critical activities that will support your human capital decisions throughout the process of buy-build-bind.
- Be clear about the expectations and capabilities needed.
- Thoroughly assess your key leaders in the buying process.
- Identify and build a talent pipeline.
- Review the strategic plan regularly.
- Work with leadership experts/coaches to support the team and investors.