How important is sales growth post management buyout?

“Three pieces of advice I would give any CEO who is going through a private equity buyout for the first time would be:

  1. Take control of your business

  2. Set standards and expectations

  3. Sales growth solves all problems”

    James Bagan, Former Sales Director of IP backed businesses IP Solutions and Autologic

As James mentioned in our latest PEPTalks event, sales growth is crucial post management buyout and failure to grow the business can lead to strains in the newly formed investor-management team relationship.

Private equity investors tend to want to know in extreme detail what’s going on in their investments and confidence in the management team and more particularly the CEOs can be measured by the quality and frequency of information the CEO is passing back. This in turn, can add a lot of pressure on the CEO who is already focused on adjusting the business to the new private equity model and strengthening the sales function might slip down the priority list. Our experience and recent research paper* on CEOs post private equity buyout has indicated that perhaps businesses could get ahead of plan more quickly by addressing their weaknesses in sales earlier on in the investment cycle (53% of respondents reported weaknesses whereas only 34% of them made a board appointment to address this).

“The first few months post buyout, it is easy to lose focus of what is important for the growth of the business, the customers’ needs and focus on pleasing the investors with numbers, reporting etc. You have been invested in for growth therefore it is one of the key areas you need to draw your attention to post-buyout to make sure your business is growing in alignment with your buyer’s needs.”

Often a shift in strategy may be required for growth to be achieved, this could include overseas expansion, acquisition, diversification etc. James suggests you get out and see your customers, find out who they are, what they want now and what they will want in the future and then work on delivering it.

Even though sales are very important for investors, our research has shown that they are mainly management led and the investors have little or no involvement in this area. Thus, it’s up to the management team to make sure they have all the right tools in place for sales growth.

Deploying an interim into a business early post MBO can help to quickly accelerate the professionalisation process, freeing up the rest of the management team to implement the new strategy and get on with running and growing the business.

“You’ll find that things will go an awful lot easier (with the investors) if the top line is growing.”