Focusing on operations only limits value creation in private equity acquisitions
In Hollywood movies, corporate acquisitions are often portrayed as disruptive events that slash costs and cut jobs. What makes for great entertainment, of course, doesn’t always yield the best results in the real world. And while some private equity firms have earned reputations for being relentless cost optimizers, there are other winning strategies for unlocking the full value of acquisitions.
Here at Mensana, we’ve helped our PE clients discover new pages in their acquisition playbook. We know that there’s so much more value that PE firms could unlock in their acquisitions. In particular, we’ve developed tactics to reimagine sales and the commercial side of their businesses — the process turbocharges revenue generation, boosting your PE firm’s returns.
So why don’t PE firms’ playbooks include improvements to the sales side of the business?
We think the answer to this question lies in two linked factors: existing limitations within the sales organizations of the companies that PE firms typically acquire, and the kind of work that needs to be done to improve them.
Often, acquired companies have been grown from the ground up by their founders and haven’t explored ways to fully optimize their sales growth. This presents a large opportunity for acquiring firms to invest into the sales department in order to grow market share. Overhauling a firm’s sales processes is not a straightforward task. It requires a careful assessment of the sales-growth opportunities open to the firm, identification of the ones that are achievable within the time frame dictated by the PE firm’s planned exit date, and formulation and implementation of a new sales ops regime that’s capable of achieving them.
There’s a general perception that the outcomes of this sort of sales-side work are uncertain. So it’s perfectly understandable that PE firms prefer to concentrate on the costs side, where the work to be done varies less from project to project and the results are more predictable.
But once you start thinking about how big the increases to exit values can be if an acquisition’s sales ops are overhauled, focusing on this side of the firm makes much more sense. Our data indicates that over five years, carefully targeted work on a firm’s sales processes can deliver increases to exit multiples. What would have been a 4-5% growth asset can become a 8% or 10% one.
What sales excellence or sales execution work could be added to the PE playbook to increase exit values?
Look for the right opportunities
The starting point for a commercial overhaul is the due diligence phase of the acquisition deal. This is the ideal moment to begin a commercial survey of the firm’s current sales. Assuming the deal passes due diligence, this work should continue at a finer-grain level after completion.
The most important areas to understand include the current share of wallet, sales capacity, and sales pipelines. By having a handle on these things, it’s possible to obtain insights into where the most achievable opportunities for substantial sales growth are hidden at the firm. A breakdown of share of wallet, for example, often reveals the acquired firm has existing clients that could be persuaded to buy additional product lines from it.
Formulate strategies and change plans
The next step is to work out strategies for harnessing these opportunities, as well as the changes that will need to be made to the current sales approach so strategy execution can begin. In some cases, what’s needed is a reorganisation of the field sales teams and a reprioritization of which product lines sales efforts focus on. In others, sales pipelines need to be redesigned, or sales teams need to be expanded.
Implementation can be the most difficult stage for PE firms. Whereas cost-side work happens at the level of books and assets, sales work is all about people. Sales strategies only work to the extent that the sales team is committed to them. And because these teams tend to operate on a much more hands-off basis relative to the rest of the firm, if you don’t take the right approach, getting them to do things differently can sometimes feel like trying to manage the unmanageable.
How Mensana can help
Getting buy-in from a sales team for a new commercial strategy is just one of the ways that Mensana can help PE firms that want to seize opportunity in sales. The sales-side work we’ve done with clients includes:
- Performing fine-grain analysis of the key components of sales effectiveness —including share of wallet, sales pipeline, and sales capacity—to identify growth opportunities that align with the client’s timeline for performance improvement.
- Collaboratively prototyping and implementing new strategies aimed at tapping into these opportunities.
- Aligning their sales people, processes, and tools with new sales strategies.
- Monitoring results on a week-by-week basis and developing solutions to progressively eliminate obstacles to achieving new sales targets.
- As a result of the above, doubling their client prospects within a year and increasing them fourfold in two.
Interested in finding out more about how Mensana can multiply your exit returns? Click here to contact us.