Private Equity

For private equity organisations looking to realise high multiples, the management team capability of portfolio companies and the value that generates, is now recognised as key. As debt financing tightens, the pressure on operational performance is set to increase. To minimise risk and support the end to end process, we provide a unique and flexible package geared to the private equity market, covering management assessment services, interim services providing experienced senior teams and longer term executive search, should it prove necessary.

We know in this volatile environment, time is of the essence, and we will work with you to quickly assess your senior team members, identify any gaps and where relevant, conduct executive search while providing senior interim leaders. Our dedicated Interim Practice works across multiple sectors and will provide quick short term solutions should they be appropriate.

Our management assessment services are the essential step to realising value from the senior team. They are also a precursor to evaluating new investments and portfolio companies where a private equity house may need to formally assess one or more members of a management team.

We provide a package or selection of three independent assessment methods covering psychometrics, work experience and reference checking. The breadth of these tests uses a three person team, which includes an occupational psychologist, an executive search consultant with relevant experience of the portfolio company's industry sector and an executive search researcher trained in reference checking techniques.

How it works in practice
Occupational testing
The manager will be asked to take several psychometric tests including reasoning, personality, and a structured face-to-face interview with an occupational psychologist from our Leadership Consultancy Practice. This involves a half day time commitment. Managers are rated on a score of 1 to 5 on the categories listed below with commentary. A score of 3 is what we would consider to be a minimum level of competence to execute at the required performance level. A score of 5 is a benchmark of what would be available from strong external candidates if an executive search is used. The following capabilities are, in our view, predictive of effective management performance in a private equity backed company:

Intellectual skills

• Critical reasoning: the ability to assimilate complex verbal, numerical/financial and diagrammatical data and make appropriate judgements
• Complexity: the ability to engage with new and novel problems that are open-ended or ambiguous and cannot be resolved using computational logic as measured through reasoning tests above
• Strategic thinking capability: the ability to switch effectively between broad strategy and operational focus

Interpersonal skills

• Leadership: the ability to align and motivate a team behind a business plan and manage performance effectively towards achievement of financial goals
• Emotional intelligence: the ability to manage personal emotions and those of others in a professional manner (particularly in board meetings) through sound business influencing skills

Action skills

• Task focus: the ability to maintain a disciplined focus on business goals (such as EBITDA growth); communicating a strong conviction for follow through, persistence, resoluteness and conscientiousness
• Planning: the ability to react to changes in the market and formulate and deliver coherent strategic plans

Work competency
An optional second part of the assessment involves evaluating each manager on a range of core competences specific to each job. For example, for a CEO it may include relevant industry sector experience, experience of equivalent scale in terms of people management, familiarity with a particular business model. For a Finance Director it might, for example, include investor relations and acquisition experience. An Executive Search Consultant from the portfolio company's industry sector would lead this aspect of the assessment and draw upon his/her experience to compare the manager with strong external candidates who we would expect to recruit through an executive search. This would involve the manager preparing a CV and then conducting a face to face interview with the consultant. The search consultant would also meet other members of the management team along with key stakeholders such as investors or non-executives in what we call an environment study. We would then place the manager into one of the five categories below, along with the reasons for reaching this conclusion.

• Star Candidate. Already able to take on greater responsibility.
• Strong Candidate. Competent to do the current job.
• Short-listable. Has relevant experience and ability but stronger candidates exist.
• Long-listable. Insufficient experience or achievement. Not short-listable on a search.
• Not Relevant. Would face a long learning curve and high risk of failure.

Reference checking
For the third part of the assessment we would select six people who have recently worked closely with the manager but are no longer part of the management team. This would be done following a review of the manager's CV and would include a mix of line managers, peers and subordinates in what we call a 360 degree reference check. We would request specific named referees, for example, "the finance director the manager worked with in 2005 when at IBM". We would not accept people randomly nominated by the manager. We will then ask the manager to contact the referees in order to facilitate the process. A senior researcher in our private equity practice would then conduct a structured telephone interview with each referee with a brief to probe achievement against agreed core competencies.

Where all three methods are chosen, the personality, work experience and reference checking assessments would then be integrated and fed back to support an informed selection decision. This is typically a mix of written reports and interactive workshop style presentations.

NEXT STEPS. If you are interested in learning more about our management assessment services please contact a member of Norman Broadbent's Private Equity Practice team.