Taking the lead in private equity

With privately held assets on the rise globally and turmoil in the public markets, value creation opportunities continue to multiply across private equity portfolios. The same applies to leadership opportunities for senior executives within the private equity (PE) landscape.

Increasingly private equity-backed firms are looking for forward-thinking leaders who are agile, collaborative and demonstrate a sense of urgency – they seek transformative leaders rather than those used to steer a steady ship. In the past, a transition from a PLC to a private equity-backed business was considered unconventional, but despite all the challenges, this move is increasingly becoming an appealing one for CEOs and CFOs – and one that we are helping many of them to navigate.

In our experience, the overwhelming majority that do take this route never want to return to a public company. Having made the switch, eight out of ten PLC leaders choose to remain in the PE space. That’s not just because leadership roles in a private equity-backed portfolio company are financially rewarding. They’re also professionally highly rewarding for the right type of executives, making such move self-selecting in the first place.

Ready to hit the ground running

In the PE world, individuals with the right skillsets and character traits generally excel. While the PE community is relatively hard to break into, once leaders have proven themselves within it, they’re in continuous demand, with most funds looking to hire executives with prior experience in a portfolio company. Unlike PLCs, which are increasingly open to lateral transfers, PE owners usually want talent from the same or adjacent sectors.

Since their own skills and experience are focused on financial matters and overall value creation, they’re attracted to individuals who can bring an in-depth understanding of industry trends, challenges and opportunities. For leaders with the right qualities – whether they’re CEOs or CFOs – stepping up to take control can be hugely appealing.

However, it takes a particular type of leader to succeed and thrive in the private equity sphere, with an expectation to hit the ground running and accelerate from there. They’ll be attracted to the rewards, both financially and in terms of overall job satisfaction. They’ll also be excited by the opportunity to drive the medium- and long-term company strategy away from the quarterly scrutiny of the public market.

Move fast and get results

It’s crucial to recognise that a successful career in public company leadership is no guarantee of success in private equity. This is because running a PE portfolio business raises some unique challenges. The pace is very different, with decisions and execution often needing to be undertaken with speed and the acceptance of a degree of risk. Also, instead of having to adhere to a PLC’s quarterly reporting timetable, the priority in private equity-backed companies is value maximisation over the entire multi-year investment period. The PE industry has the reputation of being short-term focused in their outlook, however, it is anything but.

Modest support and hierarchy in PE firms

Leaders from larger PLCs are often accustomed to tiers of functional support, with some – at times high – levels of bureaucracy. In a portfolio company, where demand is more streamlined and goal-aligned, leaders are expected to move fast and generate value – with far fewer people to rely on or to help reduce workload. They will work side by side with the investors and, in order for this relationship to flourish, they’ll need to ‘leave their ego at the door’.

For the right individuals – people who thrive on relentless pace, pressure and challenge – it’s an exhilarating opportunity. And the rewards reflect that. Alignment of interest, with the opportunity to have ‘skin in the game’, is a big attraction for PLC leaders stepping into private company roles.

But it’s not for everyone. However much a PLC leader might believe they can get results, many would get frustrated with the leaner structure they encounter in a private equity-backed business. Getting results under these circumstances calls for resilience and deep reserves of motivation.

Risk, ambiguity and team building

These roles suit individuals who are comfortable with risk and ambiguity. Often senior leadership is brought in halfway through a deal, or in some cases near the end of the PE cycle. From the outset, exactly when the business will be sold and to whom will be unclear.

Exceptional team-building qualities are essential. Newly arrived CEOs and CFOs will often need to assemble an outstanding team, typically against the clock and often in an environment that’s HR-light.

Our advice for leaders considering a private equity-backed business career is to bring extraordinary self-belief. Be ever ready to back yourself and undertake in-depth due diligence, not just into the company, its sector, competitors and growth path, but also into the fund, its track record and the people who lead that particular deal. Speak to other portfolio companies. Dig deep and ask tough questions.

CFOs also need special qualities

It’s worth calling out some specific pointers for CFOs contemplating the transition to private equity-backed businesses. First, recognise that most funds will replace a significant number of senior finance executives when they invest. While the opportunity is enormous, so is the scale of challenge for incoming finance leaders.

In a PLC environment, the CFO’s time tends to be monopolised by external interactions and obligations like investor relations, statutory reporting and regulatory compliance.

PE CFOs will have different priorities: to start with, there’s no IR with public investors – at least not until the company decides to IPO, if that is their preferred exit route. The compliance burden, while of course still there, is less onerous. There’s a lot more emphasis on the operational side, with CFOs being much more involved in running the business from day to day.

They’re expected to bring with them a broad set of skills, with most having already worked across the entire finance function, often in operational finance roles at divisional or regional level. Instead of being able to delegate to their finance teams, PE CFOs have to be comfortable operating with fewer resources and absorbing more tasks themselves. CFOs who succeed in the private equity world – like their CEO counterparts – will be individuals who relish pressure.

A life-changing move ahead

Our team has decades of experience in the PE space. We’ve worked with multiple CEOs and CFOs, helping them to navigate the transition and find portfolio company roles where they’ll excel – as value creators and as individuals on a fast-track to stellar careers outside the public marketplace.

It’s not a world that suits everyone. But for leaders with the right qualities, it’s a life-changing move.

To learn more about how we can help you find and attract talent with the capabilities to succeed in private equity, contact Brian Hamill, Anastasia Belinskaya or Matthew Leedham.

The authors

 

 

 

 

Brian Hamill, Chair

 

 

 

 

 

Anastasia Belinskaya, Head of Industrials

 

 

 

 

Matthew Leedham, Head of Business & Professional Services

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