The importance of management assessment.

February 27, 2024

It isn’t just about the numbers, it’s about the management.

As one of our management assessment clients recently stated it is

“so important to ensure that we know as much about the character and reputation of the management team as the underlying numbers and analysis via the data room.”

Global Chief People Officer, acquisitive private equity portfolio business

The right management team with the right mix of skills can make or break the success of an investment. Evaluating management teams goes beyond analysing financial statements; it requires a deep understanding of their leadership qualities, strategic vision, and execution capabilities. In this blog post, we delve into the importance of assessing management teams, uncovering key considerations and effective strategies for making informed investment decisions.

Understanding the people you are seeking to partner with.

Our clients seek to actively partner with the management teams running the businesses they are investing in, they are investing in the people as much as the products and services the business offers. Yes of course, they want to complete their diligence into the team’s strengths and weaknesses, the gaps in the skillsets, ask whether the team is fit for purpose and can deliver the plan. But more than that, our clients want to understand the individuals behind the organisational chart, the person behind the title. Many private equity investors proudly talk of their desire and ability to partner with management teams but to do that effectively, they must understand more than just the numbers.  And whilst the investor might want to be a partner to the team, it is critical to take the time to ask the management team what they want too – do they want you as their partner alongside them on this journey, or do they actually just want the financial backing?

Individuals are complex, management teams even more so, and there may be complicated leadership dynamics at play. It is important to dive down and seek to understand those interpersonal dynamics. Are they likely to help or hinder business growth? Understanding personal values, goals and drivers is a key part of our assessment – we recognise that “success” might mean very different things for each team member.  We seek to discover whether everyone is truly bought into the stated goals or if there are hidden agendas causing a lack of alignment. Does everyone take responsibility for their own performance and that of the business overall?

“Firefly’s perceptive assessment of management teams gives us real insight into the values and motivations of the people we are seeking to partner with.”

Partner, private equity client

What does our management assessment entail?

Whilst every project is tailored to the specific client, management team and situation, our management assessments typically involve the following:

  • In-depth interview of each member of the senior management team
  • 360° reviews of the senior team
  • External referencing
  • Psychometric assessments (optional)
  • Comprehensive report with analysis and recommendations

During our interviews we ask the individuals a variety of questions that we have created specifically for this person, situation and investor so we are able to get to the nub of the issue if there is one. We will also ask the team 360° questions to enable us to pull together a clear picture of the wider team and whole business. We then seek to speak to a variety of external referees to give a rounded perspective, for example including former or current superiors, peers, subordinates, customers and suppliers. Where a management team have been together for a long time, as is often the case with founder-managed business where the team have been together since inception, we find the additional use of psychometric assessments can add greater depth to our reports.

Once our conversations are complete we produce a report for our clients to take to their investment committee. Again, these reports are tailored to each project and client remit but will always include our analysis and opinion of the team – our aim is not to tell our clients what we think they might want to hear, it is to give them an independent, objective report that they can work with to make a more informed investment decision.

“The clarity and candour of the reports gives us an unvarnished view, which is invaluable.”

Partner, private equity client

Helping you to understand how the team might behave.

Private equity can be a daunting experience initially for management teams who have not been through a similar process previously. Whether they are moving from being founder-owned and led or are being carved out of a large corporate, the transition can be tricky at times. There are different challenges and pressures to face, new stakeholders to work with and keep happy. Our assessment reports can offer our clients a real insight into the personalities, values, and potential derailers of the individuals, enabling them to better support the team. For example, if an individual reacts in a certain way to a stressful situation, the investor can be pre-informed that this is likely to happen and therefore be less surprised, ready with an appropriate reaction or solution. Indeed, a client once described our reports as an “operating manual” for management.

How will management feel about us digging this deep?

Investors are sometimes concerned that asking the management team they are carefully building a rapport with to participate in this assessment process will damage their new relationship. In nearly twenty years of working with investors and management teams, we have met, interviewed, referenced and assessed a huge variety of personalities. We have evaluated individuals in Australia, Malaysia, Mauritius, Cayman, South Africa, and North and South America, to name but a few, as well as across Europe and the United Kingdom. We have evaluated management teams in all sorts of business from running high tech businesses to waste businesses, providers of radiation detection equipment to manufacturers of dog food, and, yes, quite a few accountants. Unsurprisingly those individuals range widely from straight talking operations directors to quietly spoken finance directors, dominant founder CEOs to overly confident sales directors.

“I was a little apprehensive before undertaking the assessment with Rona – it’s a little disconcerting to have your personality and operational style discussed over three hours!  By the end, I didn’t feel I’d been formally assessed, but rather a helpful exploration of self, and a reflection of how I worked with colleagues in the team.”

Member of senior management team being assessed

Our experience shows that in the majority of circumstances, people are more than willing to participate. That isn’t to say everyone is initially delighted, the founder CEO might not want to open up about their “why”, the stretched CFO might not want to give up a few hours of their time whilst trying to get the deal done.  But our genuine experience is that most management teams recognise that their potential investor partner just wants to get to know them better. Of course they realise that the investor wants to know if they are capable, whether there are any skeletons in the closet, but they also grasp that the investor wants to get to know them personally, beyond the spreadsheets – and they appreciate that, albeit occasionally begrudgingly. This is their opportunity to talk about what matters to them, what they really want to achieve, what they hope the investor will bring to the table (other than the money!). And in most circumstances the management get something from it too, something to take away, something to work with going forward whether this investment goes ahead or not.

In conclusion

The management team could be your greatest strength, your best chance at making this business soar, meeting those targets and achieving your exit. But they could also be your greatest risk of derailing. Management assessment requires a multifaceted approach that combines analytical rigor with qualitative insights. By understanding the importance of strong leadership, employing effective evaluation criteria, and leveraging appropriate tools and frameworks, we enable investors to make more informed investment decisions about the teams they back.

Get in touch to discuss how we can help you with your management assessment requirements.

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