Summary
Many value creation plans assume a level of visibility into the business that doesn’t exist yet at close. This piece looks at why the technology and data decisions made in a PE hold’s first 100 days set a ceiling on what the rest of the hold can achieve, and why the gap between the value the deal was priced on and the value that’s achievable now costs more to close than it used to.
[Estimated read time: 2 minutes]
The Ceiling Is Set at Close
In a PE hold, the technology and data decisions made in the first 100 days set a ceiling on what the rest of the hold can achieve. That ceiling doesn’t move later, no matter how well the rest of the hold is run.
Many value creation plans depend on metrics like margin, utilization, and retention to know whether they’re on track. The problem is that plans often assume a level of visibility into the business that doesn’t exist yet at close. The data behind those metrics lives in separate systems, and each team defines, tracks, and interprets them differently. No one and no system have connected them well enough to measure whether the plan is working.
After a few months of making decisions without accurate, connected data backing clearly defined KPIs, the operating team is executing against a timeline that no longer matches the one the deal was priced on.
We’ve watched portfolio companies discover, well into a hold, that real value had existed the whole time and simply hadn’t been visible: acquired units they could have benchmarked against each other months earlier, or a KPI that never measured the thing that was going wrong.
Why This Gap Costs More Than It Used To
The gap between the value the deal was priced on and the value that’s achievable used to be forgivable. A hold could drift operationally for a quarter or two and the returns still showed up, because cheap debt and multiple expansion did most of the work regardless of what was happening inside the business. That cushion is gone in every industry we work in. Whatever gap opens in the first 100 days now has to be closed by the business itself, and the firms getting to value fastest are the ones closing it on the timeline the model assumed, not the one reality hands them later.
The gap almost always traces back to the same root cause: no one is accountable for closing it. The technology and data plan built during diligence gets handed to an operating team that wasn’t in the room for it, and there’s no forcing function that makes anyone pick it back up.
This gap doesn’t close on its own, and waiting doesn’t make it easier to close later. We go deeper on how to tell whether a value creation plan is achievable, and where accountability for closing this gap should sit, in our latest whitepaper, “What You Defer in the First 100 Days You Don’t Recover.”
