Dark Money
What a shame yesterday to learn that one of my favorite leaders lost his job in a tussle with his PE owners during his “second bite at the apple.” He founded his company on the notion of it becoming a billion-dollar baby, and it was on a trajectory to do just that through the usual roll-ups and tuck-ins, and organic growth.
He was excited about PE and his first investor and saw a great path. It was a great choice. I knew the firm and its reputation, and its principals are good buyers and owners. They were what I have come to call smart money. But four years later, after a great run, they exited and dark money entered the scene. PE has to flip, and flip they did. The second owners came in with a bang — with their dreaded playbook from which there is no deviating.
The first thing they did was install their CFO — de riguere, especially with the dark money handlers. Cost-cutting ensured. No growth equity here. Top officers were jettisoned. Several of them top women leaders who left when the onslaught began. One told me the day the PE firm closed, the suits arrived in swarms. Hands-on was an understatement. It’s about the playbook and “my way or the highway.”
And on it went, with a push me/pull you between the PE owners and CEO, who thought the company was still his, probably in shock from the transition from smart to dark. But when they write the check and take a majority interest, they own you. It’s as simple as that. The fine print usually spells out preferred rights if certain circumstances prevail. And so, he was out.
I wrote him to ask, “Why didn’t you call me?” I’ve seen this movie play out in our industry literally a few hundred times and could have helped. We could have warned him about the dark money players. We know who they are. The CEOs in our network have worked with most of them.
And when leaders get unceremoniously dumped, I usually get the call to talk through all the feelings and bruises the ego and emotions take. It’s happened to public company CEOs, too, but seems more prevalent among PE. We offer an ear, access to our research and experts while in transition, and networking galore. We’ve even had CEOs negotiate Outsell into their exit packages. But I’ll leave that for another day.
At the end of the day, PE is blood sport. It’s for certain types of firms and certain leaders, and one has to have a certain mindset to compete and thrive in it. But most of all, you need to know the rules of engagement and the culture of the firm that is signing the check. It can be downright ugly. I’ve seen more than one CEO shocked by the experience, especially when it comes to a business they’ve founded and still think of as theirs.
It reminded me of a turnaround CEO I worked with at D&B moons ago. He was brought in to work on a business that needed process reengineering, new leadership, growth, or all of the above. I was put on special assignment to work with him and the process reengineering firm he brought in. That year was my MBA. It was priceless in so many ways.
I’ll never forget one seminal moment when he asked the CEO of a boutique firm we had bought to join him in the conference room. The CEO of the boutique firm was fighting integration — the new ways of the parent company. He was wanting to run the show without playing nice with the other leaders or sharing the benefits of his boutique’s research inside the firm. So, into the conference room we went.
This leader sat him down and said:
You sold me your company.
I wrote you a check.
You cashed it.
Your company is now mine.
It’s a little more complex than that with PE, but not my much. Enamored with growth? Looking for the exit and cashing out? Want the second bite? Choose your PE partner wisely.