The Business Doctor: The people factor in private equity due diligence
Integral role of people assessment
An integral part of any private equity (PE) investment process is thoroughly examining the potential venture. Dan Adler of Apiary Capital underscores this fact, stating that due diligence isn’t merely a financial exercise — it extends significantly into people management. Specifically, it’s about gauging the competency and motivation of the company’s team.
Adler advocates using various assessment tools, such as personality tests and referencing. However, these metrics only partially fulfil the objective. It is also paramount to establish a rapport with the management team. Delving deeper into their aspirations and motivations helps discern whether their drive aligns with the long-term goals of the investment.
Art of augmenting talent
When a company shows noticeable skill deficits, Adler recommends a strategic solution: infusing the team with experienced individuals. This approach is not about replacing the existing workforce but rather complementing it. Seasoned professionals in positions such as the Chairman, CFO, and, notably, the Chief People Officer (CPO) can inject invaluable experience and insights into the business, bridging the skills gap and steering the company towards success.
Significance of the Chief People Officer
Increasingly, Adler points out, the role of the CPO has become indispensable in PE-backed companies. Their primary responsibility is to foster and manage the company’s most prized asset — its people. By ensuring that the employees’ career aspirations resonate with the company’s objectives, the CPO shapes a rewarding and growth-oriented career trajectory within the firm.
Key takeaways
1. Due diligence in private equity involves an in-depth assessment of the human element, necessitating a mix of objective measures and subjective judgment.
2. Infusing a team with experienced individuals is a strategic move to bridge skills gaps, contributing to the company’s overall success.
3. The CPO’s role, focusing on aligning individual career aspirations with company goals, has surged in importance in recent years.
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