MBO Lessons from Leeward

February 2, 2023

Last month’s inaugural How They Did It podcast featured our interview with Leeward Investments CEO Todd Vingers on his firm’s successful management buyout from its parent company, LMCG. Leeward—a Boston-based US value equity manager with roughly $2.7 billion under management—was the value franchise within LMCG, a subsidiary of City National/RBC before Todd and his partners completed an MBO early last year.

Leeward’s successful MBO is one of a small number in recent years, and a potentially helpful example for others contemplating a similar move. Most would-be MBOs stall out, snagging on one gating issue or another. Often the management leaders don’t have the determination or capability to make it happen, or there isn’t a sufficiently cohesive group to establish a standalone business. Perhaps a price can’t be reached, or the parent is obstinate, or the clients’ business can’t be neatly carved out. There are myriad execution challenges and risks that might be too daunting for either side to accept. A lot has to go right.

So what did we learn from Leeward’s experience? There are a few takeaways worth keeping in mind.

1. It helps to have a willing seller. Threatening to walk out might bring a parent to the negotiating table, but it likely means high risk and scorched earth. The odds of a minimally disruptive negotiation are much higher if both parties see potential merit in a separation. In Leeward’s case, City National/RBC was looking to divest non-strategic assets. In others, there may be room for an ongoing relationship, perhaps managing parent assets or contracting parent resources. Thinking about benefits to the seller can be a good way to grease the wheels.

2. Price setting can take time. Often parties come to the negotiating table with unproductive expectations, and all kinds of biases are at play (self-serving, confirmation, anchoring, recency, etc.). Narrowing the bid/ask spread likely requires a cocktail of negotiation, education and patience (and perhaps, at times, an actual cocktail). We all want to make things happen and move forward, but in this context patience is an advantage. For Leeward, the steady drumbeat of interest combined with its solid investment and business performance allowed it to hang around the hoop until the conditions were right.

3. Perseverance matters. Not only can price setting take time, but there are likely to be myriad obstacles that get in the way. Perhaps a business setback, an uncooperative colleague, or a difficult negotiation. Todd didn’t share any major obstacles beyond price setting, but we’ve seen others run into roadblocks and quit trying and we’ve seen some with the fortitude to push through. Bottom line is if you don’t want it badly enough, you likely won’t get it.

4. Personnel continuity and full functional excellence is key. Whether it’s an MBO, a lift-out or a walk-out, odds of success highly correlate to keeping most or all of the key people and to having highly capable people in key roles. Too often we see investment teams or financial advisors attempt to peel off, with little regard for the other legs of the stool and proper infrastructure. Leeward was smart/lucky/both to have all the right people at their prior firm come along. No doubt this enhanced client confidence in the company’s ability to execute on its own, and getting out of the gate with the client base largely intact undoubtedly keeps them out of the penalty box and bolsters viability.

Every MBO is going to look different, but these are some of the basic principles underneath the successful ones. We’ll have another MBO example to share in the next How They Did It episode in March. In the meantime, let us know what you learned from the Leeward episode, or from your own experiences and observations. If you haven’t yet listened to our conversation with Todd Vingers, you can find it here.

Has Anyone Figured Out the Right Remote Work Policy?

August 10, 2022

That’s the question we get in almost every single meeting. Investment firms are struggling to find the right policy, and they want to know if their peers have found the answer. The answer is simple… no, they haven’t.

Nearly everyone agrees the “old days” of five mandatory days in the office are unlikely to return. No doubt some will try—even acknowledging there may be fallout from such an approach—but they will be a small minority and may find the fallout greater than anticipated. An illustrative comment we heard recently: “If he drags us back five days a week, I’ll leave.”

On the other hand, nearly everyone also agrees some element of in-person is necessary— for so many reasons— and most firms are thus experimenting with all types of hybrid environments. “And it’s working!” they say, optimistically, before explaining why it’s not. Usually, the regrets are related to not knowing who’s in and when, or people missing important information because they weren’t in the office and the conversation happened after the team’s Zoom call ended.

We’ve learned a few important lessons through these conversations, and can share a few key takeaways:

Listen to your people. Whether through conversations, surveys or other means, find out what is important to the individuals on your team. People may value the ability to work from home because they avoid a long commute, or because they actually get more done without interruptions all day. Or they have childcare issues, or perhaps hate their coworker. Alternatively, maybe they like coming in but see no point if others aren’t there. And if they are to come in, they might have some suggestions on office space given new working norms.

The emotions and reasons may or may not be valid. But asking the questions and getting the information can allow you to make informed policy decisions. And listening to their concerns will win loyalty and effort.

Set a policy and communicate expectations. It doesn’t have to be perfect right away; it’s okay to try a policy for a while and then adjust as you try to find the right balance. Not everyone will be happy—you’ll never be able to please everyone—but it can be created collaboratively and should be communicated clearly so everyone knows what’s expected of them. Everyone’s got to row in the same direction to get anywhere.

Be flexible. Whatever policy you’re leaning toward, make sure it offers flexibility. The most valuable real estate for employees is the space between their work life and their personal life. Being flexible here will come back in spades; being rigid will chase people away. That may mean certain fixed days in the office to ensure overlap and/or coverage, with a flex day or two each week. It may mean asking people to be in the office five days if they can but being accommodating of work from home when needed (in their judgment, not yours). Some companies have decided to give each employee a certain number of WFH flex days each quarter to use as they wish.

Remind people that the health of the company is key, and that the people are the company. Teammates should look out for one another, be compassionate and supportive, hold each other accountable, and recognize it’s about the team, not any one person. Young employees need mentoring, socialization and the osmosis effect. More experienced employees should understand they have a role in helping younger folks along and might need to be in the office a bit more to help with development and culture. And everyone needs to do their work, and well. If those second-order needs are met, being prescriptive about policy is less important.

Define success, thoughtfully. What really matters, both now and over time? For some emperor types, simply seeing their people in their chairs all day every day might be “success.” But much of the corporate world has evolved. A reasonable objective for a remote work policy might be one that achieves high retention and productivity… are we keeping our best people and putting them in a position to do their best work? Those are signs of a high-performing culture, not a bad north star for policy decisions.

I expect the pendulum, which has swung heavily toward workers in the last few years, to swing back toward employers. We’ve heard a few anecdotes recently, such as a manager telling his team they’d need to return to the office four days a week and being told they’d be willing to do three. In a tougher market and/or economy, workers may be less emboldened to dictate terms like that. But it is clear from everything we’ve heard, read and observed that the above principles have proven the most effective for most so far and will likely be successful approaches going forward.

Firms are starting to set policies—they have to—but they’ll no doubt evolve over the next few years as managements learn what works or doesn’t and employers and employees find equilibrium. For now, though, you’re not alone if you haven’t found the “right” answer.

Note there are additional resources you can turn to, such as the CFA Institute’s three-part series, “Where, What and How Work Gets Done: The Future of Work in Investment Management”, and PwC’s Hybrid Work Comes to Financial Services.

Have other thoughts or ideas? Drop us a line.