Pre-Deal Risk: The Three Biggest Red Flags in Pre-Deal Executive Teams
Insights from Mannie Gill. Mannie is a partner and co-founder of Renovata & Company. His practice is focused on conducting board and C-level searches for private equity portfolio companies across internet, eCommerce, SaaS and ad/mar-tech. In addition, he works with public companies on their digital transformation projects.
Private equity firms conduct extensive due diligence before an acquisition analysing financials, assessing market positioning, and stress-testing business models. But too often, certain funds underestimate leadership risk. Whether it is incompetence, poor diligence practice or simply confirmation bias, we have too often witnessed some investors overestimate a leadership team’s ability to execute the value creation plan. That assumption always proves to be costly.
The wrong leadership team can slow down growth, create operational bottlenecks, and struggle to meet PE-backed expectations, and ultimately extend the hold period of the asset. Spotting potential issues before the deal closes is critical. The earlier that key risks are identified, the more time there is to address them. The key question that must be answered before the deal closes is, do we have the team to execute the plan?
Why Pre-Deal Executive Risk Matters
A business may have strong financials and a compelling growth story, but if leadership lacks the ability to execute at the next level, investment returns are at risk. PE firms should ask the following questions:
- Do we have the right CEO in the seat?
- Does the management team have the right mix of strategic and operational leadership?
- Are they capable of driving efficiencies and scaling the business post-investment?
- Can they work effectively under increased investor scrutiny and performance expectations?
Three Leadership Red Flags That Signal Risk
1. A Founder or CEO Who Won’t Adapt to the Next Stage of Growth
Many private equity investments involve businesses that have been led by a founder or a long-standing CEO. While they may have successfully scaled the company, leading a PE-backed business requires a different skill set—one that prioritizes financial discipline, process-driven execution, and board-level engagement.
Warning signs:
- A reluctance to bring in experienced executives who challenge their thinking.
- A resistance to financial and operational transparency.
- Over-reliance on instinct rather than data-driven decision-making.
If a CEO is unwilling or unable to evolve, then he/she needs to be replaced as soon as possible, otherwise the company will be in danger of stagnating, which in turn starts to erode confidence, which in turn erodes trust and before you know it you are in the middle of a turnaround.
2. A Weak or Dysfunctional C-Suite
Strong businesses aren’t built around one person. Buyers need confidence that leadership strength extends beyond the CEO. A weak C-suite—whether due to skill gaps, high turnover, or misalignment—creates risk and raises concerns for investors.
Warning signs:
- Key roles (CFO, COO, CRO) are either unfilled or occupied by underqualified individuals.
- A lack of structured decision-making leading to confusion or inefficiency.
- High levels of executive turnover, indicating cultural or leadership issues.
PE firms should assess the depth and quality of leadership across all critical functions. If gaps exist, there must be a clear plan to strengthen the team post-investment. Our advice is to start pipelining candidates pre-deal in anticipation of either replacing a weak executive or filling an empty spot. The sooner you bring the right talent into the company post deal, the sooner your plan will be implemented. This seems obvious but it amazes me how many times we have seen PE clients procrastinate and do nothing until the deal closes and even then wait 3-6 months before initiating a search, which on average will take 4.5 months to execute, which means you have lost probably 12 months without the right executive in the seat.
3.Lack of PE Experience or Investor Readiness
Private equity-backed businesses operate differently from founder-led or VC-funded companies. Executive teams must be comfortable with rigorous financial oversight, structured governance, and aggressive performance targets. Leaders who aren’t prepared for this shift may struggle.
Warning signs:
- A CFO who lacks experience with PE-backed financial reporting and metrics.
- A leadership team unfamiliar with structured KPI tracking, budget discipline, or investor relations.
- Signs of cultural resistance to institutional investment or operational change.
If executives have never worked in a PE-backed business before, firms must assess their ability to adapt—or plan for leadership changes post-investment.
How PE Firms Can De-Risk Leadership Before a Deal Closes
Spotting leadership risk early allows investors to put a plan in place—whether that means coaching, restructuring, or replacing executives. PE firms can strengthen leadership due diligence by:
- Benchmarking the executive team – Comparing leadership capabilities against the demands of a PE-backed growth environment.
- Conducting structured leadership assessments – Evaluating executive ability, adaptability, and alignment with investment goals.
- Identifying succession or hiring needs early – Planning key executive hires well in advance, rather than making reactive changes post-deal.
A Final Thought
Having the right team in place on day one is one of the biggest factors influencing post-investment success. PE firms that proactively assess leadership risks before a deal closes can protect their investment, accelerate value creation, and avoid costly missteps. Spotting red flags early isn’t just about mitigating risk—it’s about setting the business up to success.
To discuss how Renovata can help you assess leadership risk or identify the right CEO before a deal closes, contact Mannie Gill: