In Private Equity Land we have branded the notion of the first 100 days post close of a transaction.  In fact, we call it a “100 Day Plan” (note:  bankers are not always known for their creative marketing prowess).

A 100 Day Plan is meant to capture all of the things that need to be done or set on course immediately after the close of a deal to accelerate the company’s execution of the underwriting thesis.    You might be wondering what that means – let me break it down for you.

A PE firm is comprised of deal teams.  Those deal teams perform due diligence (they study a potential deal for its potential as a good investment).  The PE firm has an investment committee that needs to approve making the investment to acquire or invest in a particular company.  The story that articulates why they should be willing to do that is built upon an investment thesis:  plainly, the key things one needs to believe can or will happen to produce the targeted investment return.

Common elements of a 100 Day Plan are:  implement better technology (ERP, reporting, etc.), build out management teams or other human capital capabilities (build e-commerce capabilities in house, add to the finance team, etc.) or find other ways to increase efficiency or enable growth. 

Typically, the PE firm develops this investment thesis along the way as they are evaluating a business.  As they get closer to the deal signing and there are fewer parties involved, management is more closely engaged, and the real “meat” is added to the “bones” of the plan.

As a management team, you are probably winded from the road show, due diligence and pre-close frenzy of requests.  Pause, take a deep breath and engage with the new investors to take real ownership of the elements of that plan that fall in your domain.  As a CEO or other c-level executive, you should feel ownership for the entire plan since most of the elements will have cross-functional implications.   The best management teams act like owners, not employees.

So, why is this post titled the “100 Days before the 100 Day Plan”?

There is a lot written about 100 Day Plans…google your heart out.  The thing I’d like to elaborate on and explore in this post is how to use the 100 Days of Due Diligence to start forming the backbone of the post-acquisition effort.  Let me give you an example:

Human Capital: 

The reactive lens:  Post acquisition, let me get to know individuals on the team better and watch them engage for a few months.  After that, I’ll determine if the functional owner can execute the thesis and evaluate their role. 

You just cost yourself up to one year of lost progress.  You’ll be busy, so that two to three months can easily become six months.  Then, you’ll second guess yourself and ask for other opinions (not necessarily a bad thing) and lose another month or two.  Finally, you’ll make a move and open a search, there’s another three months if you’re lucky (and a non-trivial expense).  If all goes well, your new executive will be on board in a year and start learning the business. 

The proactive lens:  I’ve figured out exactly what I need this function to execute over the next twelve months.  I’ve done a capability analysis with the individual leading the function and determined that she or he is either not the right person or we need to bring in someone under them to own a niche part of the plan.  I’m going to open a search on a confidential basis during the “sign to close” period and bring the hiring manager under the tent asap. 

You’ve now been honest with yourself and management about what you need, kept the integrity of your investment thesis and surgically targeted the capability you need on board to make progress.  This approach most likely saved you six to twelve months of time. 

WMS Implementation:

The reactive lens:  The company has a hard time with inventory visibility across warehouses and cannot produce labor productivity reports to manage to or use for reward / advancement.  Since this isn’t part of my core investment thesis I’m going to wait until the post close period to understand this better and spend time on site.

You’ve just reduced the effectiveness of your plans to manage working capital more efficiently and drive P&L savings via labor productivity.  By the time you figure out what you actually need you’re coming up against Q4 busy season for the business and will have to wait until the following year.  As you get past the busy season, you start to wonder if the expense is really necessary and put the project on the back burner (where it stays).

The proactive lens:  Learn why management is focused on a new system.  During the due diligence period have a breakout session dedicated to it so you can really understand the logic management is using to guide their decision.  Build the cost into your deal model, and don’t skimp here.  The one-time cost increase will not have a material impact on your deal model and in fact, the efficiencies in years 3, 4 and 5 should give you a bump up in returns.

Summary:

Due diligence can be a manic exercise full of managing third parties, lenders, bankers, your internal team and others.  Don’t lose sight of how much value you can get from the due diligence period in crafting a stellar 100 Day Plan that has deep buy in from management and is designed for execution, not brainstorming.  As you start gaining conviction that you’ll be the owner of this business you should engage management as much as possible in crafting a set of succinct initiatives that start getting assigned to people within the company.  Further, you’ll do a better job of finding out what you don’t have within the business and waste no time seeking it out (people, systems, etc.).   Use this time to build trust with management, understand the business through their eyes and experience and build a roadmap for the future that meets or exceeds the expectations built into your investment committee presentation and deal model.