Does anyone have any anecdotes about dysfunctional/difficult relationships between a PE Fund and the management team of a PortCo? (i.e. what caused the rift and how it was ultimately resolved)
I'm working at a PortCo of a well-respected PE fund and seem to be spending ~75% of my time working on deliverables convincing the fund not to do something destructive to the business.
There seems to be a major disconnect between PortCo management and the fund on long-term growth strategy, monetization, and industry knowledge in general.
While I was at a PE shop, I had the opp. to work in the investment side and portfolio mgt side of the fund. The saying around the office is that the investment team makes the mess, and the portfolio mgt. team cleans it up....
My team is lovingly referred to as the "Garbage Collectors" so I understand the dynamic
My bad, it seems that I misunderstood your question.|
Yeah I've seen it. We had an exec in charge of a major revenue generating division who knew that we were planning to exit in 2 - 3 yrs. He also knew that if he walked away, his team would follow him, and that the company would tank.
So he started sandbagging whenever we were setting KPIs (which his comp. was tied to). He wouldn't commit to a number that we thought was achievable, and he'd try to set lower targets every single time. We'd push back and insist that the KPI we were setting was achievable, and he'd tell us to fuck ourselves and that he'd quit.
Obviously this became a shit show, the exec pretty much had all the aces. He's still there...
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Head of the sales team. When he was brought on board, he brought his own crew with him -> could easily go to a competitor as there was no non-compete in place.
We'd push back and insist that the KPI we were setting was achievable
If the management team doesn’t have significant leverage, as highlighted in the situation detailed above, then the simple answer is to replace the management team with people who are more aligned with how the PE firm wants to operate the business. These kinds of conflicts are usually foreseeable before a deal is closed, which is why PE firms spend at least some time during diligence on the management team. A great management team can be a selling point in some deals; alternatively, identifying subpar members of the management team during diligence can be viewed as an opportunity for the PE firm because they can bring someone in who will run the business more optimally (in their view).
Sucks for those members of the management team, but at the end of the day this is a big part of why PE firms pay a premium to gain control of a company - being able to mitigate downside by having the ability to call the shots is a fundamental aspect of control investing.
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