Management teams and incentivisation
Our group shared a sense that a significant change in business practices is on the horizon. The pandemic has resulted in some exceptional business leaders coming unexpectedly onto the market and resultantly, funds, in recognition of this, are seizing the opportunity to both bolster and re-shape certain of their portfolio management teams with this newly available talent pool.
Management incentives were also a hot topic. In one example, the mid-market PE backer of a smaller company, with some 100 employees, recognised the need to, and were happy to, re-incentivise the management team. Other referenced the value of spreading the equity wide across the business, with the advantages that can bring in terms of building commitment and loyalty.
However, the consensus was that it is probably too early to reset equity broadly. Wildly fluctuating EBITs mean valuations are hard to calculate right now. The speed at which equity valuations are changing is unprecedented.
Good communication and a clear roadmap have been key to keeping value creation plans on track as best as possible throughout the pandemic. CEOs commented that regular communication with the board during the pandemic has built huge amounts of trust. This has better enabled successful leadership through the crisis, sometimes enabling the Chair and Management teams to become closer to their PE investors.
PE backers are especially reliant now on experienced management teams, particularly those who have led through previous exits and who know how to navigate difficult circumstances. To this end, succession planning has taken a back seat during the worst days of the pandemic, with the focus being squarely on survival.
As activity picks up, we will remain in close touch with our PE network and will share evolving trends in our next blog.