PRIVATE EQUITY

Private Equity Overview

LeadFirst’s Global Private Equity Practice serves private equity firms (and other investment firms, including hedge funds and venture capital firms) around the globe. We provide a broad range of human capital services, we call TalentFORCE™ Management, from initial due diligence, portfolio management through to exit.
Let’s get right to the point, net income and market value can be regarded as functions of the return on either capital or talent. Although the two metrics produce similar results, return on talent represents an increasingly attractive model in a competitive environment where the intangible assets that talented employees create comprise a greater share of newly created wealth. However, PE firm and portfolio company managers rarely have deep experience or training in human capital management or the analytical tools and lexicon of intangible asset valuation and management and, therefore, tend to neglect this driver of wealth creation.

Private equity firms and the management teams of their portfolio companies naturally focus on outcome measures such as EBITA, but measuring and managing human capital, a critical causal factor of EBITA, is often overlooked. The vast majority of private equity and portfolio companies still gauge performance using systems that measure only financial results. These systems are based on metrics that don’t take sufficient notice of the real engine of wealth creation today: the leadership capability, organizational cultures, knowledge, relationships, reputations, and other intangibles created or expressed by talented people and represented by investments in such activities as leader, team and culture development, and change execution.

LeadFirst Learning Systems has a 30-year reputation with brand name private equity firms that seek to create substantial value through human capital performance improvement. The portfolio companies of the private equity clients we support have achieved impressive results by managing organizational culture and talent as “intangible” assets that create tangible value. Composite results for our client companies include:

LeadFirst Client Company Performance Improvement (Public Equity and Private Equity)[1]
  • Per-employee increase of 11.6% in sales; valued at $61,288 per employee
  • Per employee increase of 9.1% in earnings (EBITDA); valued at $5,815 per employee
  • Average per employee increase of 8.3% in market value (or proxy); valued at $43,814 per employee
  • Decrease of 27% in employee attrition; valued at $104 million
  • Team-level safety compliance improvement of 27%
  • Improvement ROIs in the range of 304% to 3,180%
  • Decision Effectiveness improvement of 18%
  • Average organizational culture improvement of 33% (baseline vs. 2-year re-measure)

Service Offerings: The following four private equity solutions are central to our comprehensive “screen-manage-exit” approach to maximizing PE firms’ return on investment.
  • Organizational Culture Measurement, Management and Integration
  • Executive Talent Assessment and Management
  • TalentSEARH: A New Order in Senior Management Sourcing & Selection
  • Change Management
  • Workforce Communication

TalentFORCE™ Solutions: Thinking-intensive talent, and the culture that encourages or restrains it, not capital, now drives the creation of wealth and thus deserves to be measured more rigorously and managed more intentionally by strategically minded portfolio managers.
  • Organizational Culture Measurement, Management and Integration: Approximately 80% of strategic change initiatives in the private equity and venture space fail. These include stand-ups, carve-outs, and mergers. LeadFirst has conducted in-depth autopsies on 180 of these change initiatives. Typically, these failures are less attributable to flawed strategies than to organizational culture incompatibility and resistance. Our Diialog™ Culture Measurement and Management System is a time-tested solution to this problem.
  • Executive Talent Management: Few things are as critical to an investment’s ultimate success than having a stable and effective leadership team. Assessing, selecting and retaining your leadership team is paramount, as is the team’s ability to function as a high-performing unit able to develop and implement a strategy that drives growth and meets future business challenges. This is particularly true, and particularly daunting, during a transition and major restructuring.
  • TalentSEARCH: Broadens the definition of search, to include executive transition. TalentSEARCH™ is superior to the prevailing approaches on the front-end, in the middle, and through the conclusion of the transition.
  • Change Management: Change management is one of the most significant issues in transactions and restructurings. Failure to recognize and effectively manage people issues in the context of organizational change has a direct and negative impact on the business in terms of lost revenue and/or long delays in capturing the intended value of the deal or restructuring strategy.
  • Workforce Communication: In today’s economy, the nature of many transactions combined with heightened employee concerns about key elements of their compensation packages – such as eroded equity rewards and retirement savings – has put increased pressure on management to ensure employees remain engaged.
TalentFORCE™ Solutions have been delivered to portfolio companies at every stage of the business life-cycle.

Standing up’ a New Entity: We work with private equity firms to “stand up” newly independent entities, focusing on the critical areas of organizational culture optimization, workforce productivity, communications management, leadership and talent assessment, selection and development.

Portfolio Companies: We help private equity firms extract more value for their investors through the enhanced performance of their portfolio companies. Applying the EBITDA multiplier to the cost savings realized from our TalentFORCE™ Solutions can increase firm value significantly.

Exit: We help prepare a company for sale, whether in the secondary market or by initial public offering. For example, vendor due diligence can help reassure potential buyers. This will speed up the sale process by anticipating questions or concerns that may be raised with respect to human capital issues, including culture, talent availability and potential redundancies, and communications.
Metrics That Matter Brief Description of Applicable Metrics
Business Impact Measures business impact of the intervention.
Return on Investment (ROI) Compares the monetary value of the results with the costs for the program, usually expressed as a percentage.
Employee Productivity Improvement As measured by change in per capita sales, EBITDA or Market Capitalization from Time 1 to Time 2.
Employee Retention Unplanned employee attrition reduction from Time 1 to Time 2, including a financial impact calculation.
Culture Assessment Results Time 1 baseline to Time 2 re-measure on Diialog Organizational Culture PROfile.
Decision Effectiveness Improvement Time 1 baseline to Time 2 re-measure of decision quality, velocity, execution and friction.
Team Cohesion and Effectiveness Time 1 baseline to Time 2 re-measure on Team Alignment, Communication, Conflict Management, Innovation, Process, Team Orientation, and Trust
Executive Transition Quality and Speed Selection consensus among hiring stakeholders; time-to-placement; unplanned senior team attrition; new executive stick rate.
Key Stakeholder Testimonials Stakeholder verbatim regarding observed behavior change and/or business improvement.
[1] LeadFirst TalentFORCE Analytics; except Decision Effectiveness, mean 24-month improvement from inception of engagement
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