Liz Richards was a founding director of Callcredit Information Group and helped build and exit the company from Skipton Building Society in 2009, completing a further private equity buy-out in 2014 for around £500m.
She says that when there are private equity investors, your strategy must stand up to interrogation.
When you have private equity investors, a key role for the chief executive and finance director is to ensure that the strategy stands up to investor interrogation and to keep investors onside as the strategy is developed and delivered.
Here I share some thoughts about how to do this, based on a number of perspectives from my time at EY and in banking through to raising funds for a number of businesses I have worked in.
I think it’s important to get the right focus and tone for the strategy from the beginning of an investment period. Your existing management team should have an established strategy, so the question to ask is – to what extent will a new investor bring fresh thinking to the vision for the business?
Make sure all parties believe in the strategy
Any new investor will have done pre-acquisition diligence, including commercial and market reports, and that means they have gained valuable external intelligence. They will also have presented their own strategy and business case for the target to their investment committee.
The result of this is that they may have a different view from management, for example, as to which markets to target and where to direct resources. When any new investor gets involved every view needs to be challenged, reconciled and then there needs to be clear consensus – so that all parties believe in the new strategy to gain the best chance of successful execution.
Private equity is all about growth, which comes with risk. Investors and funders want assurances that the risk profile of the growing business is within appetite. That means clear reporting of the risks inherent in all aspects of the strategy – and extremely important, for example, when management presents an acquisition investment case.
You can quickly lose credibility with an investor if you can’t demonstrate that risks have been properly assessed and evaluated. They will respect you for presenting a fully-rounded view, demonstrating all the upside potential but also articulating the risks.
Link strategy to investment plans
Strategy also needs to link to capital investment. Strategic growth plans require investment to execute them, and of course capital is a scarce resource. Investors will want to know that any investment, whether a capital project, acquisition, or simple investment in sales resource to grow the top line, will yield the best returns.
They also want to know what all the options are at any one time and ensure that the term of investment is such that returns are maximized at exit. To set the strategy in a business where there are many competing opportunities for growth, it’s important that investors see these projects set out side by side. It’s then easy for them to compare the size and scale of investment, potential returns from each and the likelihood of execution and risk factors.
Keep investors informed on delivery of strategy
The most important thing is to keep investors informed and keep it simple. It’s all about delivering the strategy, and being able to articulate performance against the strategic plan.
Whilst depth and quality of data is important, it’s also vital to present performance in an easily digestible, exec summary type format. That will keep the time-poor investor happy – but overall, successful delivery of the plan is the key.
Whitecap’s report, How to create and deliver an agile strategy, provides more insights on the subject including their nine steps to ensure your strategy delivers. If your business has external investors – or if you are an investor – it would be great to hear your views on this subject.