A Case for Private Equity Portfolio Managers to Embrace Interim Leaders

Preserving Value: A Case for Private Equity Portfolio Managers to Embrace Interim Leaders

In the dynamic world of private equity investments, preserving the value of your portfolio is paramount. Quick and effective intervention is crucial when facing turmoil and a declining portfolio company. This article highlights interim leaders’ significant role in preserving and enhancing the value of your initial investments. We delve into why private equity portfolio managers should consider engaging interim leaders before a business reaches a point of economic disrepair.

Q1: What inspired this article’s need to engage interim leaders in the private equity realm?

A: The inspiration behind this article comes from the increasing need for PE-backed businesses and PE or VC portfolio managers to understand the pivotal role interim leaders play during times of crisis and distress. I was recently asked to get involved with a struggling business, but it was too late.  For fear of upsetting the management team, which I understand, the fund manager had waited too long, and the business had deteriorated beyond economical repair.  I aim to shed light on the value of interim leaders in expediting business recovery and the importance of proactive engagement. 

Q2: Why should private equity portfolio managers consider interim leaders for their portfolio companies, especially before the situation worsens?

A: Engaging interim leaders, I deliberately emphasise the term Interim Leaders here because many Interims are not leaders.  Engaging an Interim Leader offers a strategic advantage. They provide additional leadership bandwidth to an organisation when needed, helping prevent further decline. This proactive approach can be the key to maintaining or even enhancing the value of the initial investment.

Q3: How do interim leaders contribute to turnaround efforts and value preservation for portfolio companies?

A: Interim leaders excel at balancing operational efficiency and strategic planning. By optimising operations, identifying inefficiencies, and streamlining processes, they enhance overall efficiency and productivity. This, in turn, safeguards and potentially increases the value of the portfolio company, making it a wise investment in the long run.

Q4: Are there any concerns portfolio managers might have about bringing in interim leaders, and how does the article address them?

A: One common concern is the potential disruption and unsettlement of the existing management team. The article addresses this by highlighting that a skilled interim leader can have a calming and motivating effect on the team. They should build confidence and collaborate effectively, ensuring the incumbent team’s credibility remains intact and their efforts are amplified rather than undermined.  The approach and style of any Interim Leader are critical, and fund managers should always ask and take references from potential interim leaders about how they go about their role; you can check out my approach here. 

Q5: Can you provide insights into the financial benefits of engaging interim leaders for private equity portfolio managers?

A: The financial benefits are substantial. Timely intervention by interim leaders can prevent a portfolio company from reaching a point of economic disrepair, thereby protecting the initial investment. It can lead to a faster turnaround, ultimately adding value and increasing the chances of a successful exit.

Q6: Can an interim leader work alongside follow-on investment to optimise operational impact and ensure proper allocation of funds?

A: Absolutely, the synergy between an interim leader and follow-on investment is a powerful combination. An interim leader can step in alongside the investment to assess the situation, optimise operational impact, and oversee the proper allocation of funds. They work with performance improvement and right-sizing initiatives to ensure that resources are used efficiently and that the investment directly contributes to the company’s recovery and growth. This collaboration can lead to a more rapid and successful business turnaround.

Q7: How can investors ensure they choose the right interim leader for their struggling business?

A: Selecting the right interim leader involves carefully considering their experience, track record, and ability to align with the company’s culture and goals. It’s essential to conduct thorough due diligence, seek recommendations, and engage in meaningful discussions to ensure a good fit. You can see some of my testimonials on this link, and I always provide contact details of my references.    

Q8: What is the critical message for private equity portfolio managers considering using interim leaders?

A: The key message is that interim leaders are not just crisis managers but value preservers. By proactively engaging them before a business is beyond economical repair, portfolio managers can safeguard and potentially enhance the value of their initial investments. The strategic addition of interim leaders can be the differentiator between preserving a business to survive a downturn and losing its investment altogether.

Trevor is a member of the Institute of Interim Management – My Institute of Interim Management Portfolio.