The Private Equity Toolkit – How PE Firms Grow Businesses

About the Episode

How do private equity firms quickly scale up the companies they acquire? Listen as we talk with private equity specialist Mike Roher about the primary methods private equity groups employ and how you can use these methods to grow your own company and dramatically increase its value. Private equity firms are full-time acquirers of companies and are experts at acquiring, growing, and exiting companies – it’s all they do. In this show, you will learn the primary tricks PE firms use to increase the value of the companies they acquire.

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In this Episode

2:00 How does a private equity firm work?
5:20 Is the toolkit different for private vs. public companies?
7:30 Financial vs. operational engineering
8:10 What does the private equity toolkit consist of?
10:15 Budget
11:00 Is management’s compensation tied to the outcome of the budget?
13:30 Strategic Plan
15:10 How is the budget tied to the strategic plan?
19:55 Compensation Plan
17:20 How do you design a management compensation plan to ensure alignment and accountability with your team?
19:55 What does a compensation plan look like for a VP of a typical middle-market company?
21:10 What do you think about cliffs in management bonus programs?
22:00 Cash bonuses vs. equity
23:00 How are equity plans structured?
24:00 How does a roll-over work?
27:10 How do you know you have the right team to execute the strategic plan?
30:10 Acquisitions
30:40 What’s the difference between a platform company and an add-on acquisition?
32:50 How do you decide between organic growth and acquisitions?
34:00 Do you recommend mid-market business owners implement an acquisition plan if they don’t have any acquisition experience?
35:10 Why are acquisitions so difficult to execute properly?
36:30 How do PE firms reduce risks related to acquisitions?
37:10 How much do you spend conducting due diligence on a typical acquisition?
39:00 How often do you reach a no-go decision after conducting due diligence?
40:00 Sales Team
43:40 Two tricks to building your sales team
45:30 How does an owner decide whether to make the investment in building a sales team
47:05 Governance (Accountability)
48:30 How can proper governance help scale a company?
49:35 Why is governance such a common problem in mid-market companies?
50:25 What’s your advice to owners to improve governance?
52:00 What else does governance entail other than decision-making?
53:00 How important is a board for proper governance?
54:00 What’s the biggest challenge in implementing a new governance program?
54:40 How does governance tie into the management compensation plan?
56:15 What’s the primary goal of the board meetings?
56:50 IT
58:45 Outlays of cash vs. monthly costs
59:50 Should you fix the systems or purchase new software first?
1:00:10 How do you select the best software to use?
1:01:25 How does IT tie into governance?
1:03:25 Where do you start?


  • Family offices have a much longer holding period (10+ years) than private equity firms (3 to 5 years).
  • PE firms have evolved to become experts in operational engineering as opposed to financial engineering.
  • PE firms prefer to use a profits interest plan as opposed to granting actual equity and are commonly used in LLCs. A profits interest plan is similar to a stock option plan and gives the employee a share in the future growth in value of the company without giving the employee governance rights. It also doesn’t result in taxable income to the recipient.
  • PE firms not only focus on building a valuable company, they must also present the next owner with additional growth opportunities.
  • The private equity toolkit consists of the following:
    • Planning
      • Strategic Plan: A total of three initiatives that are broken down and assigned to one manager per initiative, to ensure accountability with monthly check-ins and quarterly board meetings.
      • Budget: A bottoms-up budget that’s created by the team and is broken down into different responsibilities.
      • Governance: Push decision making down by creating a chart of restrictions. Proper governance allows employees to make decisions and take ownership. Hire a COO to focus on day-to-day operations so you can focus on strategic goals. PE firms have weekly meetings with the CEO/CFO, as well as monthly check-ins and quarterly board meetings with senior management of their portfolio companies. The goal of a regular meeting structure is to ensure accountability.
    • People & Compensation
      • Compensation Plan: A management compensation plan that’s tied to the budget and weighted based on the company’s objectives, such as productivity, efficiency, and profitability. An example for a VP of operations for a mid-market company might be: Base salary ($200k) + bonus program ($100k) + stretch goal ($100k). 10% of equity is typically allocated to the management team to ensure alignment. Cash bonuses are focused on short-term goals and equity bonuses are focused on long-term goals.
    • Growth Plan
      • Sales Team (Organic): A lot of mid-market companies have low-hanging fruit out there because they lack a sales team. Poach successful salespeople from competitors or build them from the inside – hire a young sponge. Crawl (retain additional distributors), walk (hire one salesperson), run (build a team).
      • Acquisitions (Inorganic): Organic growth is always preferred to acquisitions, but acquisitions are useful in certain industries. Play it safe and start small if you don’t have acquisition experience. Perform thorough due diligence to mitigate risk associated with acquisitions. Due diligence is expensive, primarily due to the cost of legal, accounting, and commercial due diligence (the voice of the customer). PE firms reach a no-go decision about 25% of the time.
    • Technology
      • IT: Upgrade systems and software (accounting, HR, etc.). It might cost a couple of hundred thousand dollars to upgrade your IT systems for a mid-market company and bring them up to industry standards. Stick to the best-of-breed software in your industry. Robust accounting software enhances governance. Hire an industry consultant to perform an assessment. Don’t neglect cyber security.

Learn More About This Episode

Meet Our Guest

Mike Roher

Mike Roher

Senior Partner of BlueArc Capital Partners

Mike Roher works with BlueArc Capital, serving as a Senior Partner of BlueArc Capital Partners, the firm’s private equity group, and BlueArc Mezzanine Partners, the firm’s mezzanine lending strategy. With over 35 years of private equity investing and investment banking experience, Mike has been directly involved in the successful execution of various acquisitions, divestitures, and equity and debt financings aggregating over $11 billion in value. Before merging his firm with BlueArc Capital Partners, he founded and operated Roher Capital Group for fourteen years, a private equity and merchant banking firm.

Prior to starting Roher Capital Group, Mike led and co-led over $11 billion in mergers & acquisitions and financings for Fortune 500, Financial Times 500, and middle-market companies. He has worked with closely held and family-owned companies originating, structuring, and raising private equity and debt capital and advised on mergers and acquisitions and originating new acquisition opportunities, closing more than 150 deals over his career. He is a graduate of New York University (BS in Finance) and the NYU Stern School of Business (MBA).

Location Location: Atlanta, Georgia

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