Date published: 01.09.08 - not release date

Danger of managers who can derail a deal

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AC29/06
4 December 2006

Danger of managers who can derail a deal

Failure to build and manage a team, or take responsibility for results, interpersonal rivalries between managers, a narrow functional background and inability to adapt are the most common ways in which executives can derail deals, says management due diligence specialist Armstrong Craven.

The company says it has uncovered cases where directors were using pseudonyms to disguise previous problems in their careers, or have purposely endeavoured to steer the MDD specialist away from key sources of information by giving vague info about their experience. They have also come across Walter Mitty-style characters with fabricated private lives. However it says management due diligence should not be seen solely as a way to check the team’s credentials and weed out unsuitable individuals, but also as a basis to formulate action plans to improve the team’s long-term performance.

With the quality of the management team being one of the most important considerations for investors, management due diligence is increasingly being used alongside financial due diligence by venture capitalists and corporate financiers in the run-up to an MBO or acquisition.

Specialists like Armstrong Craven use a mixture of desk research, investigative techniques, psychometric testing and interviews to assess each individual’s management and professional skills, entrepreneurial flair and personality. They also check their qualifications and background.

Victoria Gartside of Armstrong Craven says poor leadership skills / failure to have dealt with people issues and a fundamental inability to take an already successful business to the next level are amongst the most common problems, however in some extreme cases the process raises questions over an individual’s integrity or discovers that he or she has been sacked from a previous job or been disqualified by their professional body.

It can also alert investors to other issues, for example in an MBO where the exiting owner-manager is the only one with a relationship with the key customers and suppliers.

She adds: “Speaking to others in the industry, we were consistently told that one individual was too ‘theoretical’ and not entrepreneurial enough. One source noted that ‘he needs all the green lights to go ahead … if there are 49 green lights and one orange, he stops and goes to the orange light to analyse it’. The investors decided they needed a more practical person who was prepared to take more of a risk.

Victoria says that while in the most extreme circumstances they may recommend an individual is dropped from the team, alternative solutions can be found to most problems. For example, where the management due diligence has highlighted missing skills, it is usually possible to strengthen the team with the addition of an external director.

She adds: “Management is the biggest creator of value but also the biggest destroyer of it. Unanticipated problems are costly to rectify and can destroy the deal. Management due diligence is not simply a valuation process for the acquirer, but a foundation upon which action plans for improvement can be built.”


Note to editors:-

Armstrong Craven is Europe’s leading provider of executive research, the cost-effective, proactive way to resource boardroom, senior and middle management roles. The company also offers a knowledge and information service, gathering intelligence on markets, companies and individuals; and provides career management to support individuals through periods of career transition.

Armstrong Craven serves an international client base ranging from FTSE 100 companies to SMEs, private equity firms and professional advisers and has an ongoing commitment to client service and innovation. Established in 1990, Armstrong Craven has offices in Manchester and London and is part of Work Group plc.

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Sam Dabbs
Dabbs PR & Marketing
Tel: 01939 210502
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