Private equity has a familiar story about the period after a deal closes. The new owner arrives, spends a few months getting to know the business, and then begins to make changes. The story is comfortable for everyone involved. It is also, in our view, the most expensive habit in the industry.
By the time a transaction closes, an owner has usually spent months in diligence: studying the quality of earnings, the commercial position, the technology and the people. That work should not end at signing. It should become the first draft of an operating plan, ready on the first day of ownership rather than assembled in the first quarter.
Diligence is the first draft
At Slate Blue Foundry, the investment memorandum that goes to the Investment Committee already carries a value-creation plan: the handful of changes the investment depends on, the order in which they will be made and the measures that will show whether they are working. The committee approves the plan along with the price. After closing, the board, the management team and the deal team work from that same document.
This sounds obvious, but it changes behavior. Questions that are usually deferred, such as which systems need replacing, which roles need filling and which customers or product lines deserve more capital, get answered while the team still has the full diligence record in hand. Management knows what the owner expects before the first board meeting, not after the third.
“An owner who arrives with a plan earns the right to change it. An owner who arrives without one tends to drift.”
What belongs in the plan
A good hundred-day plan is short. It should fit on a few pages and be readable by everyone who has to carry it out. We look for a few things in particular:
- A small number of priorities, each tied to a reason the investment was made.
- Named owners inside management for each priority, with the support the owner will provide.
- A monthly reporting pack with a stable set of measures, agreed before closing.
- A clear view of what will not change, so the team is not distracted by everything at once.
- Baselines for cybersecurity, financial controls and reporting that every portfolio company meets.
The last item deserves a word. Owners often treat controls and security as compliance work to be scheduled later. We treat them as part of the foundation. A business that cannot close its books on time or protect its systems cannot execute anything else in the plan with confidence.
Plans change; discipline does not
No plan survives contact with a real business unchanged. Markets move, customers surprise and some assumptions in any diligence turn out to be wrong. The value of a written plan is not that it is always right; it is that it makes changes visible. When a priority shifts, the board can see what changed, why and what it costs, instead of discovering months later that the business has quietly drifted onto a different course.
That same discipline carries through to the end of an investment. A business that has been run against a clear plan, with consistent reporting and sound controls, is easier for the next owner, lender or public investor to understand. In our experience, the exit is prepared on the first day of ownership, whether anyone says so or not.
Perspectives are general information and reflect the views of Slate Blue Capital at the time of writing, which may change without notice. They are not investment, legal or tax advice, do not describe or offer any security, fund or service, and should not be relied on in making an investment decision. See Important information.