Mergers and acquisitions (M&A) are not simply financial transactions. They involve complex changes in organizational structure, culture, systems and processes.
The post-merger integration (PMI) process is a critical component of any M&A deal. PMI refers to the process of integrating two or more organizations after a merger or acquisition.
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With the right strategies and framework in place, businesses can ensure a smooth transition.
Let’s discuss some of the key aspects of this challenging process.
Preparing for the integration process involves creating a PMI plan and timeline, as well as developing strategies for effective communication and stakeholder engagement. These are essential for ensuring buy-in and support from employees, customers and suppliers.
Here are some things that might be part of that plan and timeline:
Identifying key stakeholders
Creating a PMI team
Conducting due diligence
Developing a communication plan
Creating a detailed integration plan with clear target dates
Assigning responsibilities and roles
Establishing a process for issue resolution and decision-making
Developing a change management plan
Creating a risk management plan
Defining success metrics and benchmarks
Establishing a timeline for monitoring progress and making adjustments as needed.
The execution of PMI involves several critical steps, including identifying and addressing cultural differences, harmonizing systems and processes, ensuring regulatory compliance and addressing talent management issues. Failure to address these issues can lead to a lack of alignment, lower employee morale and decreased performance.
One of the most significant challenges during the PMI process is identifying and addressing cultural differences. That’s because failure to address cultural differences can lead to significant issues down the road. An experienced interim CHRO can be a great resource for these situations.
Harmonizing systems and processes is another critical step in PMI. This involves aligning IT systems, financial reporting and other key processes. Harmonization ensures that the new organization operates efficiently and effectively, and that there are no redundancies or duplications.
It’s also essential to identify and address any regulatory requirements and ensure that the new organization is compliant with all relevant laws.
Finally, addressing talent management issues is critical for ensuring that the new organization has the right people in place to reach its goals. By identifying key talent, developing retention strategies and creating a plan for integrating employees from both organizations, you’re much more likely to have a smooth transition.
Working together to establish objectives and key results (OKRs) before joining the two organizations is essential. This is how you’ll know whether everything is going to plan and objectives are being reached.
Focus on the metrics that are most important to your business, when they need to be achieved by and how you plan to report them to key stakeholders.
Success metrics may include financial metrics such as revenue growth, profitability and return on investment (ROI). It could also mean employee satisfaction, customer satisfaction and market share.
Whatever key performance indicators (KPIs) you choose, they should be directly tied to your bottom line.
Post-merger integration is a complex and challenging process, but with the right framework in place, businesses can ensure a smooth transition.
If your business is considering a merger or acquisition, it’s essential to have a comprehensive PMI framework in place. The right one will help your business mitigate risks, harmonize systems and processes and address cultural differences, regulatory compliance and talent management issues.
The PE-grade resources in the BluWave network can help you create that framework and get the maximum value out of your new business relationship. Contact our research and operations team to set up a scoping call and get connected with a best-fit service provider in less than one business day.
Technical debt doesn’t always get a good rep, but it’s not black and white, either.
There are both benefits – usually early on – and consequences, which accumulate with time.
As part of their IT due diligence process, many private equity firms take a hard look at the technical debt they might incur. That means it’s just as important for portcos, as well as private and public companies, to understand what they have on their hands before engaging in a potential sale or transaction.
In addition to defining technical debt, let’s look at some examples and types, as well as the pros of cons.
What is Technical Debt?
In software development, technical debt refers to the cost of maintaining a suboptimal or inefficient software system that was developed with an emphasis on speed, rather than quality.
It’s incurred by prioritizing quick results over a more well-designed code, which will mean more work to fix in the future, often with the objective of quick, short-term gains.
While technical debt can be a catalyst for growth, it can also create a challenges for developers and inhibit scalability.
“It allows companies to create software faster, with the understanding that they will slow down software development in the future. Companies will eventually be forced to spend more time fixing the debt than the amount of time it took them to produce the best solution at the beginning,” writes Trey Huffine of freeCodeCamp.
Companies may eventually be forced to spend more time fixing technical debt than they did to produce the best solution in the first place. It can also be defined as the cost of reworking a solution caused by choosing an easy yet limited solution. It represents the difference between what was promised and what was delivered in a software product, including shortcuts taken to meet deadlines.
While technical debt is not always bad, many businesses use it to launch ideas quickly as a minimum viable product (MVP) and then rapidly iterate and improve them. It can, however, cost more time, money, and resources over time.
Let’s dig in to more details to better understand how technical debt works.
Technical debt can be found in all kinds of software development projects. The following are some examples developers may encounter.
Bugs in the Code
When developers work quickly to meet deadlines, they may make mistakes that lead to bugs. These bugs can slow down the software or make it malfunction. If they’re ignored in the interest of meeting deadlines, they’ll continue to accumulate.
Legacy Code
Code that has been written in an older version of a programming language or framework, which can make it difficult to update the software. Updating the software may require extensive code changes, which can result in significant time and effort.
Missing Documentation
Incomplete or outdated documentation can make it difficult for others to understand the code, resulting in additional work later on. Especially if those people are new to the team.
If developers don’t document their code properly, it can be challenging for others to modify later on.
Poorly Refactored Code
When developers take shortcuts to meet deadlines, they may not properly refactor, resulting in code that is not optimized, requiring more work to fix.
Ignoring Quality and Best Practices
This can result in suboptimal code that needs to be reworked, leading to performance problems.
Insufficient Testing and Documentation
Skimping on testing or documentation can make it difficult to maintain or modify the code.
Suboptimal Architecture or Design
Choosing a suboptimal architecture or design can also make for extra work as time goes on. Expect performance problems that slow down software, too.
Short-Term Thinking
Applications built only with the near future in mind eventually means consuming more resources, time, and energy maintaining and rewriting “broken code” rather than developing new ideas.
Procrastination and Compromises
Not fixing bugs when they arise will likely produce technical debt, too.
While technical debt often creates challenges, it has its benefits, too. For example, it can be used to launch an MVP, allowing businesses to gain valuable feedback from users that can be used to improve the product.
Technical debt can also help businesses remain competitive in a fast-paced environment. By prioritizing speed and agility over perfection, you can more quickly adapt to changing markets and customer needs. It can also help reduce development costs, achieving goals in less time with fewer resources.
It is, however, important to consider the long-term costs and benefits. As the technical debt accumulates, it can become increasingly difficult to maintain and update the software, leading to reduced productivity and increased development costs and security vulnerabilities. Let’s go into more detail about the potential consequences.
The downside of technical debt can be dire, affecting not only the quality of the software but also the productivity and morale of the development team. Over time it’s increasingly costly to address.
The poor code quality can result in poor performance, bugs and maintenance issues. It can also hinder the ability to introduce new features and functionality, having a negative impact on user experience and revenue generation.
Additionally, technical debt can make it more difficult for development teams to work efficiently, as they must constantly navigate suboptimal code, taking time to understand and fix it.
Tech debt can also impact the development team’s morale. As it accumulates, developers may become demotivated, increasing turnover and making it harder to attract top talent. It can also mar a company’s reputation as negative user reviews roll in, reducing overall trust in the product or service.
It’s crucial to manage technical debt carefully and address it proactively to avoid long-term consequences.
The BluWave network is full of the best technology resources on the market for private equity, portcos, and independent and public companies.
The expertly vetted service providers ready to help know how to evaluate, utilize and address technical debt in a way that’s aligned with your business’s goals.
“The good providers will help you determine whether a company is making the most of its technology investments,” BluWave Head of Technology Houston Slatton says. “They can also say the products are out-of-date, end-of-life, have security issues, aren’t being used well, aren’t being backed up.”
Regardless of your industry, we can connect you with a niche-specific IT resource in less than one business day after an initial scoping call. Contact our research and operations team today to get started.
As businesses become more data-driven, the need for a robust business intelligence (BI) infrastructure becomes increasingly crucial. With the right infrastructure in place, organizations can unlock insights that inform their decision-making and give them a competitive edge.
Let’s explore the key components of a BI infrastructure and why they matter.
Data Storage and Management
Businesses must ensure they have the right data management systems in place to efficiently store, process and manage their data.
This means utilizing databases, data warehouses and data lakes, depending on the nature and volume of the data. Without a solid foundation for data storage and management, any BI initiative will fail.
With data stored in various systems and applications, data integration is crucial to ensure that data is collected from all relevant sources.
Data must be integrated from internal systems like CRMs and ERPs as well as external sources. These could include social media, market research or other third-party platforms that are central to your business.
Consolidating all this information means having access to a comprehensive view of operations and customers behavior and characteristics.
One of the key goals of a BI infrastructure is to help users make sense of data through visualizations and reports.
By using tools like dashboards and charts, leaders can present the numbers in a way that is easy for the entire team to understand and interpret.
This practice will also help users identify trends that might not be immediately apparent in raw data, or to the naked eye.
Real-time reports are particularly important in today’s fast-paced business environment. Without them, you can quickly fall behind your competition and lose touch of who your users are.
Data analysis and modeling are essential components of any BI infrastructure. Businesses need to be able to build models that can predict future outcomes.
Skilled analysts are key here, but they also need the right technology to support data modeling, machine learning and artificial intelligence.
Leveraging these technologies will give organizational leaders a deeper understanding into their operations and customer base.
Whether you’re a PE firm, a portco, or an independent or public company, investing in a robust BI infrastructure should be a top priority.
BluWave has top BI, analytics and AI resources on standby to address your specific needs, whatever sector your company serves.
Set up a scoping call with our research and operations team to get connected with two or three best-fit service providers that are experienced with your exact business intelligence infrastructure need.
We’re proud to announce the second annual top private equity innovators with the 2023 BluWave Awards.
“We’re regularly asked by market leaders about the best practices that are being embraced by the most innovative private equity firms,” BluWave founder and CEO Sean Mooney said, talking about the impetus for creating the awards.
Our objective, thorough process gathered feedback from the world of private equity as well as the top service providers that work with them on a daily basis.
With their help, we identified the top 2 percent of firms for their innovative practices based on four key criteria identified by our research and operations team. Here’s a little more about each one.
Proactive Due Diligence Practices
Innovative PE firms look at prospective investments with an eye towards not only trusting, but verifying, but also with a preemptive lens into informing future value creation opportunities.
Transformative Value Creation
Once PE firms make investments leading private equity firms partner with their portfolio company management teams to purposely create value that didn’t or couldn’t exist before.
Embracement of ESG
Top PE firms know that ESG (environmental, social and governance) is not only good for the world, but also fundamentally improves returns.
Modern Private Equity Firm Operations
These PE leaders treat the business of private equity like a business. They strategically utilize best in class internal and external cross-functional resources to enable insightful opportunity assessments and unique levels of value creation.
We’re proud to announce ParkerGale Capital as Innovator of the Year in the second annual BluWave private equity awards. The Chicago-based firm was selected for its for exemplary innovation and leadership.
“We are proud to be recognized by BluWave for our approach to acquiring and improving small software companies,” said Devin Mathews, founder and Partner of ParkerGale Capital. “Since our founding, we have worked hard to deliver results through building an organization that deeply integrates investing and operations while sticking to our core values around ESG and diversity.”
Firms chosen for the Top Private Equity Innovator Award are selected based upon a rigorous assessment in consultation with leading limited partners, investment bankers, service providers and other thought leaders in the private equity ecosystem. Selected firms represent the top 2 percent in the private equity for innovative practices in:
Proactive due diligence practices
Transformative value creation
Embracement of ESG
Modern private equity firm operations
“Private equity is an essential business builder and pillar of the economy, facilitating growth and development in almost every industry and creating millions of jobs in America,” said Sean Mooney, founder and CEO, BluWave. “ParkerGale has differentially demonstrated how to build and grow businesses. We congratulate them on their innovation and success in creating value.”
The majority of mergers and acquisitions fail. But why is that?
This can happen for many reasons: disunity, lack of communication, impatience, poor due diligence.
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In any case, many of these failures can be avoided, either by better planning, or by calling off the engagement when the two sides realize it’s not meant to be.
We’re going to look at some of the more common reasons mergers and acquisitions fail, along with some potential solutions.
Success/Failure Rate of Mergers and Acquisitions
Instead of asking, “What percentage of mergers and acquisitions are successful?” you may be better off asking “Why do acquisitions fail sometimes?”
That’s because between 70-90 percent of M&As don’t work out, according to Harvard Business Review.
If you’re about to execute a merger or acquisition, don’t be afraid to seek outside, experienced help.
The right resources will know where your blind spots are and how to overcome them.
Here are some of the common M&A pitfalls, and how to avoid them.
The acquiring must be crystal clear about what it wants to achieve and create a detailed plan to reach those objectives.
In many cases, the acquiring company may rush into a deal, perhaps because it sees an opportunity to acquire a competitor or gain market share. A lack of strategic thinking, however, can lead to poorly executed transactions that fail to deliver expected results.
Companies should instead take the time to develop a clear strategy. It should not only outline the company’s goals and objectives, but also specific dates by which they want to achieve them.
SMART goals are a good starting point, and may help avoid wasting time and resources on poor execution.
Companies may become too focused on the potential benefits of the acquisition, leading them to overlook the true value.
They may also overestimate the potential benefits, and fall in love with ideas that will never become reality.
One example of this is when AOL and Time Warner infamously merged Jan. 10, 2000, in a $350 billion deal. Ten years later, the companies’ combined value was around 14 percent of what they were worth when the merger was announced.
There are many reasons why this marriage failed, but one thing is clear: the price tag was far too high.
This can be a major contributor to failed mergers and acquisitions because it often leads to confusion. Employees are often collateral damage to this crucial mistake.
If they don’t understand how the merger or integration will affect their job, they may start to develop anxiety and mistrust. This could snowball into a lack of engagement and motivation, leading to lower productivity and higher turnover.
Lack of communication may also mean companies don’t fully understand each other’s processes or objectives ahead of time.
Instead, they should develop clear communication strategies. This can by done via proactive updates and welcoming feedback from those who may not be directly involved in making decisions.
Unrealistic Expectations
Some companies expect acquisitions to deliver immediate benefits without fully understanding the time and resources required. This is a surefire way to put key stakeholders on edge, leading to disappointment and frustration.
The better expectations are managed from the beginning, the more time leadership will allow for everything to fall into place.
If you get everyone’s buy-in ahead of time, when the pressure does begin to mount, you can remind them about the original plan to which they agreed.
Some key factors to understand about the target company pre-acquisition are its business model, market position or customer base.
This may be particularly difficult if the companies being joined have a lot in common. Perhaps their customer base is similar, but they have a completely different approach to acquiring new clients or sales.
It can sometimes be easier to join two companies that have little overlap. One example of this would be when Amazon bought Whole Foods for $13.7 billion in 2017.
“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” said Jeff Bezos, Amazon founder and CEO, at the time.
Amazon was not a leader in offering “natural and organic foods” before the acquisition, meaning they could rely on Whole Foods’ expertise in that area without the challenges of merging with an existing process.
Poor Due Diligence
If the acquiring company fails to conduct adequate due diligence on its target, they may overlook key risks or fail to identify potential synergies.
This is a smart time to bring in an experienced outside resource.
The BluWave-grade service providers in our network have helped PE firms hundreds of times in these exact situations. They leave no stone unturned so that both parties can move forward with confidence and begin their journey together without any surprises.
When two companies have different cultures, values and management styles, it opens the door to conflict and perhaps lack of cooperation.
To address this, companies need to be proactive in addressing cultural differences and develop a plan for integrating the two cultures. This may involve cross-cultural training, mentoring programs or the development of a shared set of values and goals.
An interim CHRO can be a invaluable resource in these situations.
The solution is to identify the key operational differences between the two companies and develop an integration plan. This may involve the adoption of new technologies or systems, or the development of new procedures or workflows.
Consider hiring a strong IT due diligence resource in these situations.
Regulatory Issues
The two companies may be subject to different regulations or legal requirements, which can complicate the integration process.
Carefully review each company’s regulatory environment to identify any potential obstacles or challenges.
Involve legal experts in the due diligence and integration process to ensure full compliance.
Mergers and acquisitions are complex transactions that require careful planning, due diligence and effective integration.
While there are many reasons why mergers and acquisitions fail, many of them can be avoided.
By proactively addressing the key challenges, companies can increase the chances of success in their new business relationship.
Fortunately, we have hundreds of expertly vetted service providers who know how to confront each and every one of these challenges, regardless of your industry.
If you’re considering merging with or acquiring another company, set up a scoping call with our research and operations team to see how we can help things go as smoothly as possible.
Mergers and acquisitions are complex processes that require due diligence in multiple areas. Information technology (IT) due diligence – a thorough evaluation of the target company’s IT assets, systems and processes – is one important aspect.
The goal is to identify any potential risks or opportunities related to the target company’s technology and make informed decisions about the transaction.
“It’s important to understand how well a company is using technology or how much of a risk or liability it’s become to a company,” BluWave Head of Technology Houston Slatton says.
One example of something companies look out for in IT due diligence is “technical debt.”
We’re going to get into more detail, though. Let’s talk about the importance and process of IT due diligence in mergers and acquisitions, especially as it relates to private equity.
IT due diligence in M&As typically involve the following steps:
Preparation
The acquiring firm or company must define the scope of the process, identify key stakeholders and set expectations.
An IT DD team should have relevant skills and experience, set clear goals and expectations and determine the right timing for it to happen.
This lays the foundation for an efficient and transparent process from start to finish.
“To a certain degree, every company is a software company now,” Slatton says. “Technology is now critical to the functioning of every business, whether it is selling software or building widgets.”
Collecting data on the target company’s IT systems, assets and processes is the next step.
This entails conducting a comprehensive review of the target company’s systems, processes and infrastructure, as well as its software and application inventory.
All of this will be crucial to helping you make informed decisions about how the assets may impact the M&A transaction.
Asset Evaluation
Now it’s time to assess the value and functionality of the IT assets.
This includes both custom-built and commercial software and applications, as well as hardware, infrastructure and data management systems.
When evaluating these, consider their functionality, reliability, scalability and compatibility with your own systems and processes. Do they add something completely new? Is there a lot of overlap?
Look at how they may impact your organization post-acquisition, too. Both in terms of cost and integration into your existing IT environment.
Identifying any potential risks or opportunities related to the target company’s IT systems, assets and processes comes next.
You might start by assessing the impact of the assets on your own organization, as well as considering any risks or opportunities associated with the transaction as a whole.
Recommendations
Last but not least, you will present the findings of the IT due diligence process to make the most informed decisions possible.
This may include how best to integrate the target company’s assets into your own organization. Or measures that should be taken to address any identified risks or opportunities.
This final step helps ensure that the transaction goes as smooth as possible, and everyone is on the same page once papers are signed.
The BluWave network is full of expertly vetted service providers who have helped hundreds of PE firms with IT due diligence.
“The better service providers will look at how well a company uses a tools they have and how well they have enhanced them to meet the needs of the business,” Slatton says.
Contact us to set up a scoping call, and our research and operations team will provide two or three tailor-made resources within a single business day.
Sales due diligence is an essential aspect of the investment process for private equity firms. It not only helps PE firms evaluate the financial health of a target company, but it can also uncover hidden revenue opportunities.
Understanding the Revenue Streams of a Target Company
Before a PE firm can maximize a target company’s revenue streams, it must first understand them.
Analyzing the company’s financial statements and sales data gives a clear picture of current revenue sources. The PE firm can use these to assess the strength of the potential acquisition’s stability, growth potential and profitability.
Here are five in particular to pay attention to:
Income Statement
This provides an overview of the company’s revenue and expenses, giving a clear picture of overall profitability.
Once the PE firm has a thorough understanding of the revenue streams, it can begin to identify areas where the company may be losing revenue or where new opportunities may exist.
It may discover, for example, that the target company has missed out on new market opportunities, is not effectively pricing its products or services or is failing to fully utilize its existing customer base.
By identifying these leaks, the PE firm can take steps to plug them and capture additional revenue.
The ultimate goal is to increase the target company’s revenue, profitability, and overall success.
By performing sales due diligence to assess the revenue streams of a target company, private equity firms can uncover hidden revenue opportunities and maximize profitability.
Private equity portfolio companies have a unique set of challenges when it comes to attracting and retaining top talent. The stakes are high, as the success of a portfolio company can make or break a private equity firm’s investment.
That’s why it’s crucial to have the right resources and strategies in place to recruit effectively.
With so many portcos to manage, private equity firms can struggle to attract and retain the right talent.
Competition is fierce, especially if resources are limited and the portco isn’t a known entity. Additionally, not everyone is cut out for the fast-paced and high-pressure environment of private equity.
Let’s talk about what PE firms can do to hire standout performers for their portcos.
So, how can private equity firms overcome these challenges and recruit the talent they need to succeed? The key is to have a well-thought-out and proactive approach. Developing a strong brand and reputation can go a long way. So can having a robust pipeline of candidates and using innovative recruiting strategies and technology.
Having the right strategy in place isn’t always enough, though. It’s also crucial to execute effectively.
Step-by-Step Approach to Portfolio Company Talent Acquisition
Here are some steps private equity firms can take to attract and hire top talent:
Define the Roles and Skills You Need
Start by identifying the key positions and skills you need to fill at each portfolio company. This will help you narrow your list to only the most qualified candidates instead of wasting time with people who don’t have the right skillset.
To put it another way, you wouldn’t hire a chief technology officer with zero coding experience.
Develop a Strong Employer Brand
To attract top talent, you need to have a strong reputation and brand as an employer. This includes promoting your company culture, values, and opportunities for growth and development.
A great way to do this is by using social media to show off your company from the inside. You can also work with a PR firm – or someone internally – to connect with journalists at prominent publications that cover your portco’s industry.
A quality article by a reputable publication creates a lot of credibility.
Having a deep bench of qualified candidates is crucial for filling positions quickly and efficiently. Use a variety of sources to find them, including employee referrals, job boards, social media and recruiting events.
You can also work with specialized recruiters who are skilled in finding best-fit candidates for specific situations.
At BluWave, we don’t actually “find” candidates when you contact us. That’s because we already have dozens of them on standby for whenever a need arises.
If you’re looking for a specialized recruiter to build the perfect team, we have the service provider for that, regardless of your industry. And if you want to get straight to hiring your dream individual, we have proven PE-grade candidates ready to interview.
Even if you’re not a PE-backed business, our resources are primed to work for private and public companies, too.
Don’t underestimate the power of technology. This can make for a more efficient process by helping with things like applicant tracking, conducting virtual interviews or leveraging data and analytics.
There are business intelligence and analytics resources who specialize in this. Let us know if you want to speak with one of them.
Continuously Evaluate and Improve
Finally, it’s crucial to continuously evaluate your talent acquisition processes. This includes regularly assessing the effectiveness of your recruiting efforts, making changes based on your results and staying up-to-date with the latest best practices and trends.
No matter how good your process is now, we believe in constant refinement. Especially in today’s fast-changing, uncertain business world.
Innovative Solutions for Finding and Attracting Top Talent
Once you have your system in place, you can focus on something we mentioned above: developing a strong brand.
All other things being equal, is a candidate more likely to work for a company of which they have never heard, or a well-known industry titan that will stand out on their resume? Probably the latter.
But even if your portco isn’t that big-name company yet, it doesn’t mean you can’t work toward it.
Here are some innovative solutions private equity firms can use to find and attract top talent:
Virtual Recruiting
With the rise of remote work, remote recruiting has become increasingly important. Virtual tools, such as video interviews and online career fairs, can help private equity firms reach a wider pool of candidates and make more informed decisions.
Even if you’re not willing to let someone work remotely, at least making the interview process as convenient as possible – especially if they already have another job – can go a long way.
Referrals are a powerful way to attract top talent. Encourage your existing employees to refer their friends and colleagues and reward them with one-time payouts, extra vacation days or gifts.
You never know when someone in finance could have a connection to the perfect fit for a new IT role, for example.
Employee Development Programs
Investing in employee development and training can help retain top talent and attract new hires. Offer opportunities for career advancement, continuous learning and professional growth to keep your employees engaged and motivated.
A prospective candidate may be willing to choose your company over a competitor if you pay for their school or send them to conferences on company money.
Maximizing Your Private Equity Talent Acquisition Efforts
Private equity firms that take a strategic and proactive approach to talent acquisition are well positioned to succeed. But it’s important to remember that the best strategies and solutions are only effective if they are executed effectively.
Here are a few tips for maximizing the impact of your talent acquisition efforts:
Partner with the Right Providers
The right recruiting and HR providers can help private equity firms execute their talent acquisition strategies effectively. Look for providers with a proven track record and expertise in private equity recruiting.
The BluWave network is full of expertly vetted interim CHRO candidates who know exactly what to do in these situations.
Foster a Culture of Collaboration
Open communication across departments – and between the PE firm and portco – can be a big help. Encourage regular information sharing to ensure a consistent and effective approach.
Continuously Evaluate and Improve
Whether using data software, as suggested above, or conducting face-to-face exit interviews, the better you understand what makes top talent leave – and stay – the better prepared you’ll be to find that next dream candidate.
Whether looking for an interim CFO, or in need of a specialized recruiter to help you find a new CRO for a niche industry, we have talent and service providers on standby.
When you go through scoping call with our research and operations team, they’ll provide two or three best-fit solutions in less than one business day.
From there, we’ll be by your side from the first introduction all the way until your project is complete to hold resources accountable.
Once you have the answers to those questions, and whatever else you come up with, it’s time to match them with your portco’s immediate needs.
Since this role is typically filled for 3–9 months, you want to make sure you hire someone who can have a maximum impact in a short amount of time. Here are five key areas to evaluate:
1. Experience and qualifications in human resources leadership
The interim CHRO should have experience in areas such as talent management, employee relations, and organizational development.
They should not only have private equity experience, but also within your particular industry.
Don’t hire someone who’s worked in technology their whole career to run your manufacturing company. And don’t high a talent chief from the manufacturing industry to work in healthcare.
Setting and managing expectations is crucial for a successful partnership between the PE firm and the interim CHRO. The interview process is a great time to do that.
Have open and honest conversations from the start to ensure that both parties are on the same page. Here are some things you should discuss:
The Scope of the Role
What are the company’s specific needs that you hope this candidate will address?
In addition to the recommended questions above, you’ll want to talk about challenges specific to your situation.
Is there high turnover? A PR crisis? Lack of professional development? Discuss specific scenarios during the interview.
Specific Goals and Objectives
What specific things to you want them to accomplish?
Goals could be based on reducing turnover, increasing productivity or implementing a new company structure within a given timeline.
Available Resources
Will they want to make new hires? Implement a new software? Use consultants?
When evaluating the cost of hiring the candidate, make sure you’re taking more into account than their compensation.
It’s often well worth it, though, as there are many benefits to hiring a interim chief human resources officer.
The interview process plays a crucial role in identifying the right fit for a talent leader at a private equity-backed organization, or even private and public companies.
At BluWave, we make sure you get connected with two or three exact-fit solutions so you can skip the search process and get to know your candidates sooner.
Contact our team today to save time and tap into the BluWave-grade service providers in the PE-grade network.
Interim chief human resources officers are becoming a more and more popular request in the world of private equity.
That’s no surprise, considering how effective an effective interim CHRO can be with crisis management, navigating mergers and acquisitions, setting up a human resources department from scratch and more.
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“It’s a functional area that’s been historically overlooked,” BluWave head of Research and Operations Keenan Kolinsky says. “Private equity hasn’t viewed it as a critical function to drive value historically. But like we’ve seen over the last two years private equity is increasingly viewing human capital and HR as a value-creation driver.”
We’ll walk you through the benefits of an interim CHRO, what to look for when hiring and how to go through the entire process so you select the right one for your portfolio or private company.
Benefits of Hiring an Interim CHRO
Quarter after quarter, human capital accounts for the lion’s share of private equity activity in the BluWave Insights Report.
With so many important projects tied to talent, most companies can’t afford to be without a head of people for weeks, let alone months on end. That’s why an interim chief human resources officer can be a great option to bridge the gap.
“An interim CHRO is a seasoned executive that can come in, bring best practices to a growing middle-market company and help build a best-in-class HR function,” BluWave Co-Head of Research and Operations Scott Bellinger says. “This can range from talent acquisition, employee retention, benefits, employee handbooks and more.”
Integrating two teams into a single, well-functioning organization can be a challenge. That’s when an experienced talent executive can make the transition much smoother.
“No other functional interim executive is going to be able to effectively advise on the org design and sizing components associated with integrating businesses,” Kolinsky says.
Crisis
An interim CHRO can also provide the leadership and guidance needed to handle a crisis. These may include:
An interim CHRO can provide an unbiased view of your company’s HR practices, identify areas for improvement and recommend changes. This can be particularly valuable if your HR department has been struggling to keep up with the demands of a rapidly growing company.
“A lot of CEOs or founders have never known what good looks like as it relates to CHROs,” Bellinger says. “It’s important to make sure you have a great talent pipeline, great employees and that you’re training them properly. This allows the CEO to focus on commercial and operational initiatives and leave the other stuff to the CEO.”
The right person will also help companies that don’t have an existing structure implement a proper HR infrastructure.
“Most traditionally founder-led businesses don’t have PE-grade infrastructure in place for the company to prepare for growth,” BluWave Strategic Account Executive Hannah Welsh says. “In many circumstances, interim CHROs can be brought in to lay the groundwork for the right people processes.”
These are some of the main factors to consider when hiring an interim CHRO:
Industry Experience
You want someone who’s familiar with the nuances of your industry and the specific challenges and your company might face.
“For example, you wouldn’t want to bring a tech-based executive into a manufacturing company,” Welsh says. “They both have different processes that need to be implemented.”
We most commonly see companies in the manufacturing, business services and healthcare industry hiring interim CHROs. They can be an asset for any company that needs HR guidance, though.
An interim CHRO should have strong leadership skills and be able to manage and motivate your human resources team.
This means clearly communicating not only within their own group, but also across departments.
When working for a portfolio company, the PE firm may also expect regular reports from the talent lead, almost acting as a second manager along with the CEO.
“To work effectively, they should also be a part of the executive team. They should be a thought partner, because human capital helps the business grow,” Welsh says.
Human capital resources accounted for half of 2022 initiatives – up 2 percent from the previous year – within the Value Creation portion of the BluWave Activity Index.
They should also have a track record of quickly identifying and solving complex HR challenges.
“You’re used to integrating companies. You’re used to hiring quickly. You’re used to speed,” Bellinger says of the ideal candidate.
Some HR-related issues a company may face include:
High employee turnover
Lack of organizational structure
Lack of diversity
Employee health and well-being
Managing relationships
Cultural Fit
The ideal candidate should also fit in well with your company. Whether your team is laid back or more buttoned up, your head of HR needs to be able to relate to them.
“I would want to make sure I was very explicit in making sure I understand exactly what the roles and responsibilities are,” Bellinger says. “Make sure it’s something they can accomplish. If the interim CHRO is not very explicit in exactly what they want to get done, the PE firm is going to have a very short fuse.”
Flexibility
As you might have gathered from the other criteria, this position is anything but predictable. Select someone who can roll with the punches.
This includes the ability to quickly adapt to a company’s culture and management style, as well as handle unexpected situations such as a crisis or change in leadership. They must also be able to pivot their approach when necessary to remain aligned with the organization’s objectives.
Some examples may include leading a downsizing while minimizing negative impact on morale, or being able to shift focus to DEI initiatives in response to social and political changes.
Interim vs Full-Time CHROs
One of the main advantages of hiring an interim CHRO is flexibility. They can be brought in on a short-term basis to address specific needs, and then let go when they have been met.
This can be more cost-effective than hiring a permanent CHRO, or if your company is in flux and the future is uncertain.
You may end up hiring that same interim executive full-time, but by starting them on a temporary basis, you can “try before you buy.”
On the other hand, a permanent CHRO can provide continuity and stability for your company’s HR department. A long-term hire will also have more time to develop a deep understanding of your culture, processes and employees.
How to Find the Right Interim CHRO for Your Company
The “right” interim CHRO is going to be different for each company. It will depend on some of things mentioned above, such as culture, industry and other specific needs.
After identifying the criteria for the role you want to fill, cross-checking candidates with past work experience and references can narrow the field.
Fortunately, BluWave’s highly vetted network has already done that for you. We only admit experienced talent that has passed a rigorous pre-interview process and received positive references from the world’s leading PE firms.
When you contact us for a scoping call, we provide two or three PE-grade interim CHRO candidates, hand-picked for your exact situation, within a single business day. By jumping directly to the interview process, you’ll save weeks, if not months of searching.
“Our vetting process clearly surfaces whether a candidate will be a great resource for a company, and if not, we won’t waste their time with an introduction,” Welsh says.
Once you meet the candidate (or two or three) that’s best suited for your vacancy, it’s time for various members of your team to speak with them. This will give you a 360-degree perspective on their skillset.
You should also have a clear understanding of their availability and expected compensation. If everything lines up, it’s time to draft an engagement letter outlining expectations, pay and timeline. (When you work with BluWave, we take care of all this for you.)
Once you hire the right person, the next step is to onboard them effectively. Due to the selection process, they should already have a clear idea of expectations from day one, as well as the resources at their disposal.
“They’ve got to get up to speed very quickly,” Kolinsky says. “They need to explore what they have. What people, processes and technologies exist in this functional area, and how it can be improved and optimized.”
Hiring an interim CHRO can provide a range of benefits, but it is important to choose someone who fits within your company culture and has the right skills for your situation.
Interim leadership is consistently a top priority for private equity firms within human capital services. With such high demand, BluWave maintains a pool of experienced, vetted professionals – including interim CHROs – in the Business Builders’ Network.
Connect with our research and operations team to walk us through your specific project, and we’ll connect you in less than 24 hours with a short list of tailor-made candidates.
Whether going through an M&A, an internal crisis, a reorg or other situations that require a talent expert, here are some reasons private equity firms should consider temporary HR leaders.
Increase Efficiency and Effectiveness
A human capital leader has the opportunity to improve company operations for the short time they’ll be in their role. (Usually three to nine months.) Here are some ways they can do so.
Streamlining HR Processes
They can evaluate existing HR processes at a portfolio company, identify areas for improvement and implement changes to increase effectiveness. This may include automating repetitive tasks and standardizing processes across the organization.
For example: expediting a labor-intensive employee onboarding process with new software. They could also implement a standardized performance management system so that everyone understands how they’re evaluated.
Temporary CHROs can also collaborate with the tech team to improve data collection, storage and analysis. This makes it easier for management to make educated decisions.
One way they could do this is by creating dashboards accessible to managers. These, and other tools can streamline analysis relevant to growing the business.
Aligning HR with Business Goals
The human resources department’s objectives must also align with the portco’s goals.
Identifying and tracking KPIs – employee turnover rate, time to fill, employee engagement, DEI initiatives – is one way to do this.
The interim CHRO interview process is a great time to determine whether the person you want to hire works well across departments.
Exit interviews help managers understand why employees leave and identify what contributes to a high turnover rate. This information can be used to develop retention strategies and improve employee engagement.
Here are some of the questions an interim CHRO might ask a portco employee during an exit interview:
What made you decide to leave the company?
Is there anything you disliked about working here?
Do you have any suggestions for how we can improve?
How was your experience with your manager?
Creating Employee Retention Programs
Retention programs address the specific needs of employees, such as recognition programs, professional development and the ability to work from home, even in a hybrid situation.
Employees may also be more likely to stay if they have access to department-specific job training.
HR leaders can also use engagement surveys and focus groups to identify problems ahead of time.
Identifying Key Drivers of Employee Satisfaction
Speaking of surveys and focus groups, they not only tell HR leaders what’s going wrong but also tell them what employees like about a company. This information can help create targeted retention strategies and improve employee engagement.
Here are some of the top areas of employee satisfaction an interim chief human resources officer will want to pay attention to:
Clear communication and transparency
Opportunities for growth and development
Work-life balance
Recognition and rewards
Building a Positive Company Culture
Creating a positive company culture is no easy task, especially in the midst of a transition. That’s why it’s important to work with an interim CHRO experienced with tumultuous situations.
Besides paying attention to employee satisfaction, this person should be able to build consensus across teams.
“In a strong culture, employees feel valued,” according to Great Place To Work. “They enjoy at least some control over their jobs, instead of feeling powerless. Whether it’s by working from home, choosing their projects or trying out a new role, employees that feel valued and can make decisions achieve a higher level of performance.”
Providing Regular Feedback and Recognition
An interim CHRO can help managers to provide regular feedback and recognition to employees.
They can standardize feedback loops through surveys, one-on-one meetings, focus groups and other tactics. They should then be transparent about how they will use that information to improve the company.
It’s important to do this on a regular basis, and not as a one-off exercise.
Since this person will only be in their role for a few months, having monthly, bi-weekly or even weekly evaluations may make sense. Especially if they can develop a system that can be inherited by the person who will take on their role full-time.
An interim CHRO with experience in your industry can hit the ground running. Every business has a unique set of legal challenges, and you don’t want someone in the C-suite who has to learn on the job.
Here are some specific areas where a temporary CHRO can help with legal hurdles.
Reviewing and Updating Company Policies and Procedures
This ensures a company is compliant with all relevant laws and regulations, such as those related to labor, anti-discrimination and data privacy.
This should be done in collaboration with other executive team members as well as the legal team.
Conducting Compliance Audits
Compliance audits help identify areas of legal risk and recommend corrective actions.
The head of people can do this by developing an audit plan with a clear scope. They’ll then determine risks, gather evidence and analyze the information. In the end, they should prepare a report based on their findings.
They’ll also need to implement the plan quickly to minimize risks to the company.
Providing Training and Education
Another way to protect the company as well as equip employees is to educate them on compliance and labor laws.
Here are some resources an HR executive might use for this:
A comprehensive communication strategy informs employees about the transaction and its implications.
The head of HR may do this with a dedicated website, by holding town hall meetings or providing regular updates. They may also work with management to develop a Q&A document and establish an employee hotline.
Managing Cultural Integration
A seasoned executive will improve cross-company integration by addressing differences in culture, values and internal practices.
They do this with shared vision and values, aligning policies and procedures and promoting cross-functional collaboration.
Mary Anne Elliott, CHRO at Marsh, talked with HBR about the importance of working with other top executives on this.
“[These] meetings are a pragmatic activity. When you’re sitting with the CEO and CFO, there’s no place for academic HR,” she says. “It’s all about understanding what the organization needs to do to drive business performance and how to align those key variables.”
Assessing and Managing HR Risks
Some typical risks associated with a merger or acquisition are employee retention, legal compliance and benefits integration.
A capable temporary people leader will know how to do each of these things efficiently.
Coordinating Benefits and Compensation
Coordinating the integration of benefits and compensation packages for employees is also important.
Health insurance, retirement plans and stock options are just a few examples.
Reviewing existing benefits packages can help them identify gaps or redundancies.
Integrating HR Systems and Processes
Finally, an interim chief human resources officer can manage the integration of HR systems and processes such as payroll, performance management and employee data management.
The new, combined organization’s HR processes must be aligned with the needs of the business.
The IT department can help in this area by ensuring a smooth transition of data and systems.
Some roles are more crucial to a company’s success. The interim CHRO should identify these and devise a strategy to make sure the right talent is in place if someone leaves.
They can also identify potential leaders within the company who lack professional development.
Conducting Talent Assessments
Internal assessments help identify high performers. Since these are the people most likely to leave for another opportunity, it’s worth investing time in their development.
By aligning these evaluations with company goals and leadership needs, the employees will be better equipped for a new role.
This will open the door for them to be promoted sooner as they grow within the company.
Creating Development Programs
An interim CHRO can design development programs to help high-potential employees acquire the skills and experience needed to take on leadership roles.
These are some ways they might do that:
Rotational assignments
Mentorship programs
Professional development courses
Cross-functional team assignments
Building a Talent Pipeline
While it’s important to foster talent internally, an interim CHRO can also establish an external talent pool. Outside hires often help the company by bringing a fresh perspective to a challenging situation.
Having a group of qualified candidates on standby also saves time in the hiring process.
At BluWave, we have a highly vetted group of candidates for private equity, portco and privately owned company needs on standby. That way, we can provide you with two or three exact-fit resources within a single business day.
A comprehensive succession plan will not only focus on identifying, developing and retaining key talent, but also contingencies for unexpected departures.
Along with mentoring and coaching programs, regular performance reviews ensure that employees are ready to take on new roles when needed.
If your private equity firm or portco leader needs a human capital expert, BluWave has the world’s best temporary chief human resources officers on standby. And if you’re already in a talent role, we have tailor-made solutions to support you, too.
Everyone in our network has been rigorously evaluated while also receiving multiple recommendations from other leading PE firms.
Reach out to set up your initial scoping call with our research and operations team, and we’ll provide you with two or three exact-fit candidates, no matter how urgent your need, within one business day.
