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Debunking the Myth: 100-Day Planning in Private Equity

During the Great Depression, President Franklin D. Roosevelt called together special sessions of Congress, almost daily in the first 100 days of his first term, during which most of the New Deal economic programs were passed. Since then, the "hundred days" moniker has expanded to encompasse all improvement efforts that take place in association with new leadership in business as well as politics, particularly in connection with mergers, acquisitions and carve-out situations.

It stands to reason that private equity firms would also implement 100-Day Planning processes. However, there is much confusion over what exactly 100-Day Planning is and the value it has in private equity transactions.

The PE Perception

To address the question, A&M recently conducted a survey of more than 100 private equity funds - ranging from boutique to bulge-bracket funds, mainly in the U.S. - to assess the usage of 100-Day Planning in the industry. The goal was to identify best practices, standards and short comings of current 100-Day Planning applications.

The results revealed that over three-quarters (76%) of respondents utilize 100-Day Planning. However, respondents indicated that their process was neither "formal" nor consistently used or implemented from deal-to-deal. Despite not having a consistent format, 88% of these funds reported favorable or very favorable results; no funds reported negative results from utilizing 100-Day Planning.

While funds are clearly utilizing 100-Day Planning to positive effects, the opportunity remains to develop a more structured approach.

It's All in the Timing

When asked how these funds utilize 100-Day Planning, 93% stated that they utilized this tool during post-acquisition phases of investments. More than half of the respondents also indicated it was put to use during the pre-acquisition phase, often as an integrated part of the due diligence process. Funds stated that the timing of their 100-Day Planning often centered on a change in management team. However, funds acknowledged they were missing opportunities to increase the value stemming from add-ons, carve-outs, and performance improvement initiatives.

Resources

Funds primarily utilize internal resources to produce their 100-Day Plans, and are potentially missing out utilizing the operational expertise outside resources can provide. The deal team, operating partner, or the portfolio company management (or some combination of the three) tend to be the primary authors of the funds' 100-Day Planning. While funds have been able to achieve favorable results with this arrangement, A&M has found this can limit the ability to achieve maximal value. As one respondent stated, "We obtain the best results when company management, deal team and consultants work together on 100-Day Plans."

Focus

The primary area of focus for 100-Day processes is on the executive team: 96% of respondents deem it "Highly Important" in the process. This is also reflected when the respondents indicate the components of their 100-Day Plans: all funds indicate that "Action Items for Management" are a necessity.  Finance and Operations are also considered to be important functional areas to focus on, as well as the inclusion of "Timelines and Milestones" as 100-Day Plan components.

More important than what was included in 100-Day Plans is what was not included. Roughly half of the respondents did not consider the Sales and Marketing, IT, and Supply Chain functional areas to be "Highly Important." Furthermore, funds also indicated that "Dedicated Staff / Resources" and "Task-Level Planning" were not always included in their 100-Day Plans. These two points demonstrate that funds are focused on the tactical short-term considerations of acquisition, and missing the opportunities for long-term value creation that comes out of more detailed and enterprise-encompassing plans.

Funds Not Using 100-Day Planning

Nearly one-quarter (24%) of funds indicated they do not utilize 100-Day Planning in their deals. Their reasons for not doing so were mixed; the funds style of investment and limited operational skills stood out as prominent themes in the response. Only 16% of respondents indicated they did not use 100-Day Planning because they found it to be ineffective. No respondents indicated they had a bad previous experience with the tool.

It is remarkable that if these funds utilized 100-Day Planning, they do so in a manner consistent with current users in terms of timing of use, areas of focus, and components of the plan. However, these "non-users" diverge from the "users" in the case of the party responsible for developing the 100-Day Plan. Thirty-nine percent (39%) of respondents who do not use 100-Day Planning would employ the assistance of external parties; twice as many as the respondents who do currently use this tool. This may reflect lack of operational expertise that these funds have in-house.

Looking Ahead: The Next Five Years

Regardless of their current use of 100-Day Planning, two-thirds (66%) of funds stated they would increase the use of 100-Day Planning in the next five years. The private equity market is evolving, and funds are expanding beyond financial engineering to operational improvements as a key method to create value. As one fund stated: "We have found it to be important from both 'on-boarding' and also to ensure that change that is incorporated in the investment thesis is actually implemented."

The Future of Value Creation

Private equity firms are increasingly recognizing that 100-Day planning is a key success factor and differentiator for faster value generation. However, the more than 40% of firms that delay the process until after deals close risk leaving money on the table by not identifying ways to create value during the pre-acquisition phase. Funds that quickly initiate the planning process, and devote dedicated resources to implement a standardized approach with rigorous oversight, will be in the best position to reap the benefits and win the race for best investors.

Sicco Tans and Adam Hudson of Alvarez & Marsal’s Private Equity Services - Operations Group in New York contributed to this article.