A slow exit market changes the job inside a portfolio company more than it changes the deal headlines. The plan the owners bought was built around a sale window. When buyers and new funds get harder to find, that window starts to drift, and the value everyone was counting on has to come from the business itself, for longer than anyone planned.
That matters to the CEO now, not at the sale. Every part of the plan carries a date: the growth case, the hiring, the projects timed to make one year look its best. If the date moves, the plan has to hold up for the extra years, and a team built to be good enough until the sale has to be good enough well past it. I would rebuild the plan around that today rather than wait for the market to say so.
The market is telling portfolio companies to plan for more time
The signs point toward more time, not less. U.S. private equity deal value and exit value were both down from a year earlier in the third quarter, according to PitchBook data reported by Fortune, and a PitchBook analyst said fundraising has "definitely gotten harder" over the last 18 to 24 months. If rates rise, he said, the fourth quarter probably looks a lot like the third. For a portfolio company, that reads as a sale that may come later than the plan assumed.
Nobody knows when exits pick up, and I am not going to guess. Planning for the longer hold costs almost nothing if the market turns early, and it saves a great deal if the market does not.
Re-run the plan as if the sale comes later
Take the current plan and ask one question of every line in it: does this still pay if we sell later than the deck says? Some of it will, and some of it was only ever about making the exit year look good.
The work that compounds holds its value in any year a buyer shows up. Pricing discipline, revenue that repeats, monthly numbers the board can trust and a management team that runs the company without the CEO in every room are all worth as much late in a hold as early. One-time savings and projects timed to flatter a single year are worth less every quarter the sale moves.
Hold the team to a forecast, and watch the leading signs
A longer hold puts more weight on the forecast. My rule is a forecast the leadership team is willing to be held to, built forward from what the business is doing today. Strategy is more the art of human forecasting, reading where the momentum is going from both leading and lagging indicators. In a portfolio company that means tracking the signs that move first, such as pipeline, renewal rates and margin by customer, not only the quarter that already closed.
Keep some room in the plan. A team under pressure to hit the original date will often put everything on one big bet. I never go all in on one idea, however confident I am, and a longer hold is exactly when the room to adjust is worth having.
Fill the seats you were going to live with until the sale
Most portfolio companies carry a gap or two they planned to tolerate until the exit: a finance lead who is stretched, a sales leader who was fine at the old size, a CEO doing two jobs. If the hold runs longer, those gaps cost more years, and a buyer will see them at the end anyway. That is where an experienced operator for the gap earns its place, while you decide whether the seat needs a permanent hire.
If a buyer is already at the table, protect the run rate instead
A company with a signed letter of intent and a close date in view does not need a new plan. Its job is to keep the business performing through closing and to answer the buyer's questions with clean numbers. Re-planning in the middle of a sale process sends the wrong signal to the buyer.
Ask your board one question at the next meeting
Ask the board and the sponsor: if we sold two years later than planned, what would we need to have built by then? Write the answer down, put a date and an owner on each item, and start with the ones that pay either way.
I have written about why a new CEO needs a forecast they can be held to and about building a marketing plan that outlasts its leader. If your hold is running longer than the plan assumed, I am glad to talk it through.
John Wyatt · John Wyatt's page · All posts · RSS