From M&A specialist to manager - a triple role change that easily goes wrong

  • Private Equity

By Dominic Pfau

In M&A deals, private equity companies often send their own specialists to manage the acquired companies. But for executives with a lot of experience in banking, management consulting or investment companies, the change to the first management position is anything but an easy ride. They have to master three challenges at once: First, their new role as decision-makers with responsibility for results and personnel. Secondly, the change of perspective: instead of looking at the company from the outside, the view of internal and external issues changes. And thirdly, adapting to a new system of time and objectives: instead of trying to broker a deal in a short period of time, the task now is to achieve medium and long-term goals. That's why private equity companies are well advised to use assessments and aptitude-diagnostic tools to check whether their candidates are really the right ones for the intended position. If necessary, skills that are still lacking can be acquired or developed through training and coaching.

Against the background of the still brisk M&A business, it is a tempting prospect for private equity companies to bring people with a lot of experience in M&A deals, financing or management consulting on board the acquired companies. Those who have already got to know the company in the course of the deal and have discovered possible weaknesses and starting points for improvement - so the obvious idea - can initiate the appropriate measures after the takeover without a long preparation time. For the seconded investment bankers and management consultants, the change in management often means a financial downshift, but usually a welcome new challenge. For them, assuming a leading role in the company means being able to solve more complex tasks with longer-term objectives. A welcome side-effect is the reduction of the previously usual working hours and workload of more than 60 hours a week, making it easier to combine career and family.

Mercuri Urval regularly assists companies with M&A deals – including those financed and driven by private equity firms. In our experience, the transition from a leading position in a private equity company to a management position in an acquired company is not as smooth as it sounds in theory. Here, too, it depends on the individual case: In emerging start-ups on the threshold of becoming an established company, there is a good working atmosphere, but they often find it difficult to adapt organisationally to the new challenges posed by rapid growth. In companies in crisis, the mood is the same, and new managers have to bring along great communication skills to spark a new spirit of optimism and convince employees to embrace the necessary change. Regardless of the constellation in question, the challenge for every new manager is to quickly gain a recognised position in the network of visible and invisible social relationships and to build up his or her own network. A management position in a company brings with it completely new challenges for bankers and consultants who are accustomed to success, such as a great deal of responsibility for personnel. This role is new for many of them, and yet they have to grow into it in a very short time in order to be successful.

Skills must match the position and task

With regards to private equity companies that wish to position a specialist in the management of an acquired company, we consider four steps to be necessary:

  • Identify and remove stumbling blocks
    Every new appointment to the management team is both an opportunity and a risk. This is particularly true when specialists in one field move to a management position with responsibility for the entire company. Private equity companies usually support the new management team with their know-how, but beyond that they should keep an eye on developments within the company and remain vigilant against possible personal or internal stumbling blocks. If middle management or employees do not follow suit, the reasons for this should be identified and appropriate action taken.
  • Create a job profile of the management position
    The same applies to M&A deals as to any executive search assignment: the specific requirements of the management position should be determined during the deal. As already mentioned, these can vary greatly depending on the market position of the acquired company. A crisis manager needs different skills than a manager in a fast-growing start-up. Because every M&A deal involves a serious cut and changes in the acquired company, particularly good communication skills and persuasiveness are required in any case.
  • Selecting the right candidates
    Candidates who are to be positioned as managers in the new company as part of the M&A deal should be tested for their strengths and weaknesses by means of assessment and suitability diagnostics. The job and candidate profiles should be largely identical. A good banker or management consultant is not automatically a good change manager or communicator in the company.
  • Ensuring success through coaching, training and mentoring
    In order for the strengths of a candidate who has a lot of experience in M&A deals to be fully utilised in the new company, the overall package must be right. Either because missing competencies and skills are covered by other people in the management team or by individually tailored and targeted support of the new manager in areas where he or she has weaknesses. The focus is always on the company's success, which should be ensured by such measures.

Down-shifting provides a boost to motivation

The change of a manager in the context of an M&A deal - from a private equity company to an acquired company - can be successful for all sides. The company gets a well-versed specialist who has a lot of experience with change situations and at the same time knows how a private equity company works and its strategic goals. The company financing the M&A deal also places a person of trust in the new company. The down-shifting that this entails for many candidates nevertheless provides a motivational boost, because for many bankers and consultants financial incentives fade into the background at a certain point in their lives. For them, it is attractive to be able to contribute their previous experience to a company and prove themselves in a new role. To ensure that this favourable starting situation is actually converted into sustainable success, the change should be professionally flanked by HR measures. Good results are no coincidence but are based on a well thought-out strategy that is implemented by the right people.

If you would like to know more about this topic or would like to make personal contact, please contact Dominic Pfau.

  • Private Equity