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You want to be the CEO of a company recently bought by a private equity firm. But the big question is, are you the right fit?
The success of private equity investors and their firms depends greatly upon their ability to find and keep outstanding executives that can run the companies in their portfolios.
If this is your goal, there are several key factors about PE firms you need to be aware of first.
Your position may be temporary.
PE investors are typically seeking to rapidly and steadily grow and create wealth within their portfolio company investments, often over a three-to five-year period. Their goal is to then successfully exit their investment position by way of an initial public offering, merger or sale. That means you have to be ready to help the company grow and have an exit strategy planned out.
There will be strong oversight.
Depending upon the size of their investment and how active their involvement is, the PE investor may take one or more seats on the portfolio company’s board of directors. If you are the CEO, you need to be able to handle strong board oversight and work with directors to map the right course for the company.
Be ready to merge and grow.
Usually, a PE firm buys a company because they see value hidden in the company and its market.
While the company is in their portfolio, the PE investor will seek to corner a niche market that it has identified as an area of growth. That means the PE investor will be keen to help the company acquire a significant portion of a market by way of an acquisition or merger with another company in the sector.
Be ready to make key hiring decisions quickly.
Before buying a company, PE investors typically perform extensive due diligence on the capabilities of the current management team. Though their investments are based at least in part on the confidence they have in the company’s incumbent executives, at various stages PE investors regularly opt to replace chief executive and chief financial officers.
Usually these changes in the top level occur because they don’t feel those executives are the right fit to implement the changes expected at the portfolio company. Succession is also thought out, and PE firms often recruit chief operating officers they can groom to eventually become CEO. Most other management hiring decisions are left to the CEO and senior officers.
The right ‘fit’ is essential.
For the PE investor, recruiting the right executives and board members, who “fit” with their plans and goals, is absolutely essential. Those requirements change with each company but often they include the following criteria:
– A track record of having rapidly and successfully grown, expanded and integrated companies after mergers or acquisitions. Experience leading a company through an initial public offering is also valuable.
– Extensive understanding of the sector in which the company operates and possession of a relevant network of potential clients, partners and suppliers.
– Familiarity in working for PE-backed companies.
Determine whether you have the right stuff.
If you want to take on a senior role within a company that is backed by a PE firm, you need to carefully assess whether you have the right skills and experience to be successful. You also need to be comfortable with certain goals:
– PE firms want to see strong growth on a shorter timeline than in other parts of the corporate world.
– CEO candidates and board members are often expected to invest personal funds in their company to demonstrate their commitment. You must judge whether joining the company as an executive and an investor is a sound decision.
– Examine the track record of the PE investor on compensation and other issues, especially how executives and employees are dealt with during the course of and at the exit of their investment.
– Ensure the PE investor’s exit-strategy timeline also suits you.
– Evaluate the track record and policies of the PE investor in terms of how they add value beyond solely an injection of capital.
– Do you want to partner with a PE investor that will provide key strategic advice on aspects such as growth, financial and human resource management, operations, and process improvement? Or would you prefer to be involved with a PE investor that is more hands-off?
As a potential executive or board member wanting to join a PE-backed company, it is as critical that you perform your due diligence on the portfolio company’s investors, just as it’s important for them to perform due diligence on you. Only then can the parties fully appreciate whether or not there exists a true fit for the executive role in question.
Richard Wajs is the president and chief executive officer of TWC International Executive Search Ltd. (www.twcinternational.com), an 11-year-old global firm, and has been in the executive search field for more than 15 years.