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Doctoral Project Abstract

Value-Creation in Middle Market Private Equity: The Little Blue Book of Best Practices

John A. Lanier

Small business is the job creating engine in the U.S. economy. Private equity investment is a significant source of small business capital. Both the small businesses in which private equity firms invest, and the private equity firms making the investments, face intra-company leadership challenges as they grow. Moreover, there are inter-company leadership challenges. The fiduciary responsibilities of the private equity firm necessitate an activist board role. This posture carries over into the portfolio company's daily operations. The complexities continue. Individual private equity professionals are typically members of multiple investment teams for the firm. The teams may be characterized by mixed membership, i.e., deal teams may not be identical across the portfolio companies they support. Not only may each deal team have its own unique leadership style, but its diverse members have to assimilate styles for each team they support relative to a specific portfolio company. Finally, acquisitions are high probability scenarios for portfolio companies during the investment hold period. Acquisition integration poses yet another leadership challenge as the acquiree must be integrated into the acquiring company. Cultural integration ranks among the most chronic acquisition obstacles. Given the commonly leveraged capital structure of portfolio companies, the cost of a misstep is painful. Accordingly, the stakeholders of private equity transactions do well to embrace leadership best practices in their value-creation toolbox. Such best practices may be applied to the more chronic challenges of value creation in the middle market.

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