Private Equity-Backed CEOs: Growth Outlook - Recap by Amelia Brett, Drinker Biddle & Reath

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Let’s talk about growth…

A central question for many companies, whether private equity-backed or not, is how to grow their business. To tackle this question, David Denious, as moderator, lead the following accomplished panel of private equity-backed CEOs, who are leaders of companies in different industries, of different sizes and in different stages of the life cycle, as they shared their insights on key company growth issues ranging from organic and strategic growth opportunities, challenges influencing their industries and outlook, and their private equity partnerships.
 

MEET THE EXPERTS

  • Jyothish Daniel, CEO, Portadam
  • Peter Madeja, President and CEO, Genex Services
  • Dave Magrogan, CEO, Harvest Seasonal Grill & Wine Bar
  • David Denious, Partner, Drinker Biddle & Reath


Organic growth or growth through strategic acquisitions?

Businesses look to grow either through organic growth or strategic acquisitions. The path a business chooses, whether organic growth, acquisitions or a combination of the two, is often dependent on the specific business and its role in the relevant marketplace.

For Jyothish Daniel, CEO of Portadam, his company’s growth strategy has been more focused on organic growth rather than acquisitions, which strategy is driven by the specialized nature of Portadam’s services. Portadam’s strategy has focused more on putting in place a network of alliances with firms that can complement its capabilities, which enables the company to provide its customers with a suite of solutions. This approach has served to be more efficient in a specialized industry than a pure acquisition strategy.

As a CEO of a company in a more mature industry and one in which the company is a leader in the marketplace, Peter Madeja, President and CEO of Genex Services, has found that the best strategy for growth is one of both organic growth through the company’s existing client base through an expansion of services and an aggressive acquisition strategy.

At the helm of Harvest Seasonal Grill & Wine Bar, Dave Magrogan has focused on a strategy of organic growth based on finding and opening new locations, while also being open to potential acquisitions, including acquisitions of second generation spaces.

Finding a balance between organic growth and the acquisition opportunity cost tradeoff

As CEOs and management teams navigate their growth strategies, they are often faced with the question of how to balance the tradeoff of opportunity costs associated with managing the time and expense of pursuing acquisitions against organic growth. Our experts shared various suggestions for how they have worked to find that balance:

  • Work closely with the company’s board, management team, and investment advisors to determine what that balance should be and build the expertise within the company to establish that balance.
  • Build a platform to efficiently filter new opportunities and identify which opportunities are best for the company’s growth strategy in the near term and the development of the company going forward.
  • Ensure that the members of the management team that are focused on organic growth are not distracted by new acquisition opportunities.
  • Recognize that it is acceptable to pass on opportunities that don’t work for the company or its current growth strategy.
  • Build a network of alliances and partnerships that will allow you to explore possible opportunities and test the value that potential relationships could provide to your company without committing to a traditional acquisition strategy.


Human capital challenges and solutions  

While human capital is essential to the successful growth of a business, it was unanimously recognized that there are significant challenges associated with the human capital side of almost any business, including, to name a few:

  • Labor costs
  • Lack of trained or qualified eligible employees
  • Competition
  • Retention

Suggested solutions for overcoming the foregoing challenges included:

  • Establish financial incentive programs, for example programs to allow employees to invest in a fund that includes a company match that vests over time.
  • Provide equity options to senior management and executive level employees (a solution that finds a particular advantage in the private equity model).
  • Create referral programs, which include referral bonuses.
  • Develop internal training programs or develop relationships with specialty schools or training organizations.
  • Outline a clear career path for employees to provide them with an incentive to stay with the company long term.
  • Build a culture that attracts employees and makes your company a go to employer.


Final word: what to look for in a relationship with a private equity partner

  • Offer a clear understanding of where the company is coming from and where it is headed.
  • Be there when you hit a roadblock and be ready to have an honest conversation about how to find a path forward.
  • Possess a cultural fit with your company.
  • Build a transparent relationship, which allows for the “sharing of good new fast and the sharing of bad news faster.”