Agility matters: 4 signs PE firms should examine when considering acquisitions


Today’s private equity firms face greater risk and uncertainty when evaluating potential portfolio acquisitions, in light of the Covid-19 pandemic. While things like market size and product quality are still important factors, private equity firms must also gauge a portfolio company’s character and ability to withstand economic turbulence.

Agility may be the defining factor in this search. Agile companies are built to respond quickly to changes, take advantage of new business opportunities, and foster a culture of innovation and openness. These capabilities give portfolio companies the stability and flexibility needed to outlast the pandemic and thrive in the future.

Here are four signs of agility that private equity firms should look for in potential portfolio companies during Covid-19.

1. Open communication between employees and management
Agile companies encourage employees to share what is and isn’t working for them, without fear of repercussions.

Open communication is particularly relevant today, given that 67 percent of organizations in the U.S. plan to continue working from home. Portfolio companies must be able to acknowledge and address employees’ working conditions in order to maintain an engaged and productive workforce throughout pandemic.

2. A culture of accountability
Agile companies tend to exhibit a bottom-up management style. Individuals work in small teams, collaborate across departments, and establish their own objectives and strategies to achieve company goals. This opens up the opportunity for employees to bring unique ideas and experiences that help the company innovate.

This “inversion of control” helps foster a culture of accountability and team success because management trusts and relies on employees to figure out the best ways to do their respective jobs. Especially during a time when future business plans are so hard to predict, private equity companies should favor those companies whose employees are able and willing to adapt, change strategies, and perform multiple roles based on the company’s needs.

3. The Ability to adjust and fail quickly
The pandemic disrupted many business’ plans and made it difficult to plan for the future. Amid this unpredictability, companies that can rapidly adjust their objectives based on changing circumstances may continue to grow.

For example, we recently had a client whose business was renting out containers to be used as portable classrooms. Once Covid-19 hit, they adjusted their business plan to cater to hospitals and medical facilities that needed shelter for patients or testing.

In addition, the ability to accept failure and move on is what prevents agile companies from growing stagnant. Think about how many biotech and pharmaceutical companies today are trying to create a vaccine. While only a few will succeed, of those companies who fail, how many of them are positioned to use the data they acquired from that endeavor to pivot towards a new business opportunity?

Agile companies are always looking ahead, but not too far ahead because they recognize that there’s always something that could derail their initial plans. This flexibility is a major indicator of success that all private equity companies should look out for.

4. Continual investment in and reliance on technology
It’s no secret that many companies today rely on the power of AI, machine learning, and big data to compete in their industries. But it’s not the act of investing in technology itself that makes a company agile.

Rather, a strong sign of agility in a portfolio company is how many projects they have going on that are constantly building on these technologies:

  • How many products are they working on?
  • How are they using digital processes to improve their customer service experience?
  • How are they improving their decision making with the help of more information?

Agile companies don’t try to predict the future of technological innovation. Instead, they take small steps to continually improve their business with the help of technology.

Being agile will help portfolio companies succeed long term
Agile companies will not only outlast the pandemic, but also be in a better position to become the next leaders and innovators within their respective industries. Private equity firms should continuously look for these signs of agility as they evaluate potential acquisitions, during Covid-19 and beyond.