EMBAs and Private Equity

Quick Summary: Executive MBAs have unique skill sets that make them valuable to Private Equity firms.

Abstract:

Private Equity professionals have a difficult job when becoming actively involved in a new company acquisition.  PE firms invest in companies with the belief that they can uncover and unlock the intrinsic, but unrealized, value of a company.  Discovering the key core issues and developing and implementing plans to address the issues is a difficult task.  Individuals with real-world experience and an Executive MBA have a unique set of skills that can significantly increase the likelihood of success. It is not the EBMA degree per se that is critical.  Instead, it is the underlying in and out-of-classroom lessons learned that make them so valuable in the PE environment.

The course work, group interaction, workforce experience, and the very nature of individuals with Executive MBAs make them ideal candidates for the private equity investment industry.  The fundamental strategy of private equity firms is to unlock the intrinsic but unrealized value in the mature companies that they add to their portfolios.  That potential may be unleashed by improving operations, moving into or out of certain market segments, or through the “rollup” of related businesses.  In any case, PE firms take an active and, in most cases, a controlling roll over the operations and strategy of their companies.

Although the notion of unlocking intrinsic value is a simple concept to grasp, it is far from easy!  If it were easy, companies would have implemented plans well-before a private equity firm became involved in their operations.  The keys to success are the individuals from the PE firm’s involvement by taking an active role in implementing revised strategies.  Sometimes those revisions require only minor “tweaking.”  In other situations, wholesale changes of the products, people, and processes are required.  It takes individuals with some special talents to determine the root cause of the issues that are hindering a company’s performance and then developing a realistic (time and resources) plan to address the issues and create a path to success.  The new plan, however, is not enough; laser-focused execution must follow that delivers quantifiable (financial) results.

At first glance, it would seem natural for PE firms to hire highly specialized individuals with the experience and track record that can dive deeply into specific areas to understand specific aspects of a company’s operations.  Unfortunately, that approach can result in “silo” solutions.  Seldom is there one, single issue, in one discipline that is holding a company back from success.  Although senior company managers understand the importance of overall company success, it is hard for them to overcome the natural tendency to focus on “their” particular areas of responsibility.  The result is the unwitting sub-optimization of the overall organization.  Bringing in highly focused PE specialists could, accidentally, support “silo” fixes or optimization that miss the goal of overall company success.

Instead, PE firms need to hire experienced specialists that are focused on the overall general success of the organization.  This statement appears to be an oxymoron – specialized-generalists.  Some examples that illustrate this specialist/generalist requirement are:

  • A highly successful engineering manager that is customer-focused.
  • A marketing professional that understands the necessity of determining the financial impact of marketing programs.
  • A strategic planner that understands the tactical implications of implementing their long-term strategies.

In each example, the specialists understand the company-wide implications of their primary responsibilities and act accordingly.

As new entrants to an existing company’s management team, the involved PE individuals must quickly grasp the internal dynamics of the organization and objectively assess all aspects of the business.  Finding specialists but “big hat thinkers” is not easy.  Highly successful executives with experience in only a limited number of operational silos may not even be aware of their narrow viewpoint biases.  Executives that have broad-based senior roles are the ideal candidates.  In addition to a resume that shows a proven track record of success across multiple disciplines, an individual with an EMBA can be a strong indicator of the required broad-based, problem identification and solution mindset that is required.

Clearly, the actual course work required in an EMBA program is an important factor.  However, the EMBA student’s interaction with their peers, often with highly diverse backgrounds and specialties, is an even more important factor.  The EMBA environment mimics the environment that PE professionals will experience with a newly acquired company’s management team.  In both cases, individuals, with varied backgrounds, are “thrown together” to address issues in a timely manner to achieve a common goal.  Contrast that environment to a company with individuals that have worked together, perhaps for years, in which each “knows” their boundaries and those of others.  Unconsciously, historical norms or unquestionable practices may have evolved that inhibit the discussion, let alone, implementation of new approaches.  The results of this “inside the box” thinking is an all too common situation in which successful market leaders are blindsided by new entrants that are not burdened with the often unsaid, “We have always done it this way” rationalizations.

EMBA students with their previous and current work experience clearly understand that business decisions are rarely binary: either “right” or “wrong.”  Classroom academic discussions are quickly tempered with collective discussions from the group with multiple points-of-view.  These experiences are directly applicable to the situations that they will encounter as a PE professional.  In the new environment, they are tasked with determining a company’s “as-is” situation and then creating the “should-be” desired result.  Next, they must map a plan to achieve the newly established goal of maximizing the company’s value.  Clearly, they cannot perform these tasks alone.  They must corral the collective experience of those around them but then objectively and unemotionally chart a new or altered course of action.  They must manage the group dynamics as they did during their EMBA course of study.

Focused execution is also a common trait of anyone that has earned an EMBA.  Most EMBAs were full-time managers in large corporations, and many had families while pursuing their degrees.  Adding the in-class sessions, out-of-class group activities, and individual study requirements to these other commitments takes a special level of motivation – exactly what is needed to help a company change course.

An EMBA degree sets the stage for an individual to couple their education with their experience to create a practical knowledge base that will help them during the crucial decision-making period encountered with new portfolio companies.  Their interaction with diverse peers will help them develop the wisdom to select a specific path among many alternatives.  Choosing the most appropriate new path to follow is the fundamental challenge of private equity firms.  An EMBA degree is a strong indicator that an individual will be able to rise to the challenge and help unlock the intrinsic value of a portfolio company.

 

Article Number : 9.020401   

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