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100 Day Plans are very good and necessary!
The First 100 Days…….
During the first 100 days of a transaction, a lot takes place towards achieving the financial sponsor’s goals on the proposed transaction at hand. Closing the deal is just the beginning of a long process. This first 100 days is a very focused time frame for PE funds/financial sponsors to begin to create “value”, roll the plan out and begin to take action in order to jumpstart growth and the overall “value creation” process toward their goals. During this period, many critical decisions begin to take place on the newly acquired portfolio company, “value creation” actually begins and the road map for future growth is established.
A 100-day plan effectively creates a strong relationship between the Financial Sponsor and the operating company management team. By detailing certain key steps in the months to follow, the process also provides management teams very clear goals and benchmarks. PE firms have a narrow window to set the tone with management, discuss various changes, agree on key performance indicators (KPI’s), and develop a strong working relationship going forward during the investment lifecycle.
Common themes of the 100 Day PLAN:
The plan should be firmly in place with both sides – both the management team and the financial sponsor and need to be in complete agreement and unison. It should be crystal clear and provide clear direction, outlining most details needed for success. The 100 Day plan is usually broken down into a few key sub section parts.
Part 1 is usually a review of all costs and how the money at the portfolio company is being spent to include decisions about what should be changed or re-allocated. Establishing control of cash and tightening down on ways that cash can be disbursed will often save the company much money in the long term where controls may have been fairly loose under prior ownership. Establishing authority limits and decision-making abilities at different levels is also key.
Part 2 is developing the proper near- and long-term strategy to achieve the expected growth in order to fulfill the goals and rational for the initial investment. Usually the PE firm and the management team outline the first 100 days and what they would like to achieve and general direction in the next 3 years outward. This would include taking advantage of the various vendor relationships and supplier synergies that the sponsor can add to the general momentum of the discussions that usually take place during the negotiations.
Part 3 entails performing a full market analysis, reviewing the current environment in which the company currently operates and pinpointing where the company’s position is within the market. Management and sponsors will agree upon key metrics to measure their progress, determining key milestones, and setting timelines on the milestones. Continuous monitoring (weekly and monthly) and measuring of both financial and operating metrics is expected and will be ingrained in the process from the beginning. Examples of this would include a competitive analysis, perspectives from management, and insights from customers and other stakeholders. This may also include adjusting the mindset of the existing management team to match that of the sponsor’s cost containment controls, budgets, cash flow forecasts, etc. It may also include surveys of customers and customer satisfaction, customer win/loss rates, and same store sales comparisons, productivity per employee etc.
Part 4 is about having the right human talent. Both the company and the operating partners of the PE firms work in conjunction together to achieve effective value creation. Many of the PE firms may be able to recommend industry experts to help the company in various new ways. Many PE firms hire specialists in the HR and IT areas to help their portfolio companies succeed. These specialists often identify and help fill gaps in any human capabilities and/or systems/reporting capabilities at the portfolio companies. It also may include agreeing on performance rewards and certain incentives for management to achieve these goals ahead of schedule etc. Management teams learn that the PE firms can be a true collaborator and partner, versus a dictator if the company is falling behind on their 100 Day plan or if the confidence level of the PE firm is low on management, then the PE firm would be more likely to step in and mandate change.
Part 5 is overall communication. Frequent interaction between the PE firm and the management team is critical to success. Communication between parties can help to ensure alignment, transparency, and total success. Also, the plan must ultimately be the responsibility of management team and they (management team) “own” the plan. Often, new information becomes available post the acquisition and the team must remain flexible in planning and must be able to communicate with their partner. As things come to light not previously available during initial due diligence, the 100-day plan needs to be flexible to allow the management team to take advantage of the unexpected opportunities and meet the challenges head on while communicating changes with their trusted partner / financial sponsor.
Whatever the strategies are that are finally agreed upon and deployed, it usually starts with a 100 Day plan. Having this plan is a necessary step to identify key value drivers and create a road map for future growth and success of the newly acquired portfolio company.
Blog written by:
Brad McGowan
SolomonEdwards – Head of Private Equity Coverage – Transaction Advisory Services
& Pickwick Capital – Head – Financial Sponsors (PE) Coverage
May 07 2019