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How interim managers help GPs create value16/05/2005. Source: AltAssets. 
Growing competition and sophistication across the private equity industry means that there is an increased pressure on general partners to produce outstanding results and realise investments quickly. Firms are now becoming much more deeply involved with their investee companies both to ensure more effective day-to-day management and as a prelude to preparing them for exit. AltAssets spoke with Valeria Vescina from interim management provider AshtonPenney about how private equity firms use interim executives as part of their suite of tools to build stronger portfolio companies.  With growing competition for deals and pressure for exits, in recent years private equity groups have increasingly been adding to the value of their portfolio companies by providing management and industry expertise in addition to capital and other forms of financial expertise to company managers. Often, GPs also provide their investee companies with access to a substantial network of contacts in their relevant industry sectors. The problem is that even the bigger private equity firms might not always have the right people for every situation, whether in their firms or in the portfolio company. This is why they look for external expertise from interim managers to help them carry out critical projects.
'Our interim executives provide senior management skills at or near board level on a temporary or assignment basis. Clients hire their skills as and when needed. A suitable interim manager can be identified and hired extremely quickly and assigned in situations, where finding and recruiting a permanent manager would simply not be feasible. This is the case with tight time frames and where the deployment of specialised skills is needed only for the duration of an assignment,' Valeria Vescina explained.
Unique situations require unique solutions
The crucial reason for bringing in interim managers is that private equity firms or their portfolio companies have an urgent and very specific need for an injection of operational, technical or sector expertise. Vescina: 'In most cases the skill set required is so detailed that it matches very few people. It can include previous experience of the same function, qualifications, sector-specific skills, languages, etc. In addition, it is vital to get the correct personal chemistry and gravitas to fit in immediately alongside incumbent management.'
Typical projects for interim managers include commercial due diligence, stand-in or replacement for a key executive, marketing and/or a review of the corporate strategy, managements of projects in specific geographies in Europe, the improvement of management information reporting, preparation for exit and turnarounds.
In some cases interim managers are needed as early as during the commercial due diligence process. As experts, interim managers would be expected to have a good idea of the true potential and value of the company in question. Their networks should help them carry out very meaningful reference checks too.
'Confidentiality is a major issue in our business. As an interim management provider we and the managers we introduce need to know about our clients' plans and strategies. Our clients want to be sure that they work with people they can trust, and that is even more important in a situation where our client is involved in a bidding process,' Vescina said.
The nature of interim management requires senior executives who can afford not to be in permanent employment. 'We cannot tell when the next assignment suitable for a given interim might arise,' Valeria Vescina said. 'There are an increasing number of people who want to become interim managers and it is now seen as a true career option. We often win new candidates through leads from people who are already working with us. This is a very welcome source because then we can ask our contacts for references and they know what we are looking for.'
One of the biggest challenges in private equity is that on the one hand private equity firms need to be involved with a portfolio company's management to create more valuable businesses but on the other hand they do not wish to be perceived to be interfering: they are keen to maintain a good, positive relationship with the company itself. Hiring interim managers is an ideal way for private equity firms to visibly inject new skills (and value) while also exercising their control of portfolio companies without moving in themselves.
Originally, interim managers were mostly used as 'emergency solutions', ie when a portfolio company underperformed or there were intractable management issues. Those turnaround projects with interims proved to be very successful and private equity firms then began using them for a wide variety of other projects too. With the number of senior managers who want to work as interims increasing, it has become possible for private equity firms to choose from a pool of very different candidates with a wide range of skill sets.
Avoiding conflicts of egos
Possibly the biggest challenge and hurdle on the way to success is that interim managers must not be seen as a threat when they are brought in to work alongside the incumbent management. Vescina: 'In many cases, the idea is not to replace the incumbent management. We do not want them to leave, we want the incumbent management to benefit from the intervention of the interim manager to help their company get to the next stage of its development. Interim managers add new skills to the teams and are expected to transfer those skills onto the incumbent management so that the latter's competences have been enriched by the end of the project.'
A case study
By way of an example, AshtonPenney recently appointed an interim finance director to be deployed alongside the incumbent management of a private equity firm's portfolio company to prepare the company for exit. It was the private equity firm's objective to exit their investment in the company within a year.
Management information had not been collated or presented in the most helpful way to determine whether they should sell the business as a whole or as separate divisions. At the same time the interim executive had to mentor the financial director. 'It was an important part of the strategy, developed together with the private equity firm, that we were very keen to retain the incumbent financial director and his team, and to signal the investor's confidence in them,' said Vescina. Potentially, the incumbent team, especially the financial director, could instead have interpreted the move as a signal that they had failed, which was not the case.
AshtonPenney had to find someone with outstanding soft skills and the required qualifications: a qualified accountant who had been a financial director and had had experience of a similar task. As each company is unique, the candidate also needed to be someone who was able to prove that he or she easily adjusts to new environments and situations. 'The interim manager we needed had to have the right blend of soft skills to complete the project successfully. We tested these skills very thoroughly in the interview process,' explained Vescina.
Vescina continued, 'Searching for the right candidate is a complex process but it does not necessarily take long. In extreme cases it has been possible to find the right interim manager within one day.' Given the many specifications of the job profile in our example, the search took longer but within three weeks AshtonPenney had secured the right candidate from AshtonPenney's extensive database of interim managers operating in the UK and across Western and Eastern Europe. 'We often search for people beyond our database to make sure that we have explored all the options available. In fact, several of the people that we interviewed for the position were candidates who had not been on our database,' said Vescina.
'Our job is not done when an interim manager has been appointed. The interims do not work for us but for the client. However, we make ourselves available as a "sounding board" until the end of each project, partly because, however good the strategy and the interim manager are, you may come across "white space risk". This is when in the course of carrying out a project the interim discovers something that needs addressing that nobody was aware of before the project began,' Vescina explained. Anticipating white space risk and knowing how to manage it is important to successful assignments.
The client and the interim regularly reviewed objectives and milestones. That way they were able to tackle any issues as they occurred and ensured that they were of the same view.
Interim managers have to have many years of experience but Vescina pointed out that this does not mean they have to be in their sixties: 'As it has become more common for private equity firms to use interims for very different tasks, someone in their forties might already have the perfect experience to do a particular job.' In some cases, interims join the companies on a permanent or non-executive basis after their project has been completed.
Valeria Vescina heads up AshtonPenney's Private Equity practice, which, together with the Turnarounds practice headed up by James Wheeler, supplies top interim managers and turnaround professionals to private equity groups and VCs to help them increase the potential of their investee companies. Vescina spent ten years in corporate finance with ING Barings, where she gained extensive experience of private equity placements, trade sales and IPOs of private equity-held companies across Europe. She speaks four languages and has a degree in International Studies from the University of Birmingham. She holds a Sloan Master in Management with distinction from London Business School and recently co-produced a report with them on the use of interim managers in the City. For further information, visit http://www.ashtonpenney.com.
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