The operating model of many PE firms is changing. In the past, the objective was to pick up bargain-bin companies at wholesale prices, quickly restructure them for profitability, and then offload them for a return. However, growing competition has made it more challenging to find undervalued bargains ripe for improvement.
PE companies are finding they must hold onto their purchases longer than they’d like. While restructuring can do a lot for a flailing organization, new implementations can take time to yield results — which is why some PE companies are looking to top executive talent to create value quickly.
The standard playbook used to increase the value of a struggling organization typically involved lots of cost-cutting and debt restructuring. Eliminating the deadweight from a company’s P&L led to short-term profits, which attracted interested investors seeking to diversify their portfolios and quickly earn a return.
However, that model is shifting. Rather than looking for short-term gains, PE companies seek value creation by hiring talented executives who can lead their portfolio organizations into the future.
Identifying the right talent for an executive role in a PE company isn’t as simple as evaluating their prior experience and hoping for the best. Selecting an executive with proven experience within the industry won’t always lead to success.
Instead, PE companies are looking for individuals with solid motivations and behavioral factors that align with the investors’ aspirations and fit well within the organization’s culture.
A PE firm’s value creation plan (VCP):
Consequently, selecting the talent needed to achieve a VCP is critical. A poor match can undermine the success of the whole deal, leading to losses that the PE firm could have prevented, had they made the right choices.
For instance, an organization looking to enhance revenue growth over the next two years might look to a vetted CSO or CMO in their market sector known for closing deals. However, if that executive doesn’t align well with the company’s existing culture, they’ll likely find it hard to motivate their underlying sales teams.
The executive may lose key people simply because their leadership style contrasts with the team’s expectations. That can derail the entire VCP, stalling revenue growth objectives and putting the whole investment opportunity into a tailspin.
PE firms focused on a specific VCP must take care when structuring their executive team. When the executive doesn’t understand the VCP or possess the capabilities to make it a success, the PE firm won’t see the results it is looking for.
The process of hiring executives for a portfolio company should follow several key steps so the PE firm can make the most out of its investments.
PE firms conduct robust due diligence before they make investments. Due diligence uncovers the existing issues in the company and reveals the talent structure that the PE firm needs to fill.
After identifying the problem, the PE firm can establish a VCP and execute their strategies to achieve their goal. Evaluation should include setting specific objectives and identifying the roles that need to be filled to reach those objectives.
Existing executives are typically the first to go in a portfolio company. These people are the old guard; they’ve led the company to its current status but haven’t been able to unlock the value or potential of the organization that the PE firm is looking for. They may be quite talented, but they have a point of view that doesn’t align with the new VCP.
Removing existing executives creates a clear path forward, allowing PE firms to identify exactly what they want to achieve and what roles they need to fill.
Once the PE firm validates the need of the company, the next step is to create accurate job descriptions to attract qualified applicants who align with the company’s VCP.
Most PE firms use a playbook to find the people they’re looking for, which makes it easier to hire for multiple roles at any given time. This also results in a repetitive process that quickly uncovers the candidates most likely to succeed in the position.
Once PE firms understand the capabilities that candidates must have to fulfill their objectives, they’ll want to devise a way to assess their applicants. Assessments can involve skills-based testing or personality evaluations to determine whether the person will align well with the existing workplace culture and the company’s expectations.
Sometimes, it’s easier to hire within than to find people outside the organization. Keeping talented employees on board shows that the PE firm isn’t taking a scorched-earth policy and clearing out the ranks of existing workers. Rather, it preserves valuable internal knowledge that may prove helpful in the future.
Of course, some external hiring will likely be necessary, especially in leadership roles. New leaders will:
With the right hiring strategy, it’s much easier for PE firms to achieve their objectives within the desired time frame.
In past decades, the old PE strategy of acquiring companies, quickly restructuring them, and passing them off to other investors was easy. However, today there are fewer opportunities for fast turnarounds, and PE firms must set specific objectives to achieve their VCP.
Finding the right talent to support growth initiatives is critical. With practical strategies and proper goal alignment, firms can find the qualified talent they need.
Private equity professionals need a diverse array of interdisciplinary skills. The right blend of vision, passion, and drive — paired with a strong instinct for picking the right investment opportunities — is critical to a firm’s success.
Our 12-step due diligence process, backed by our senior partners’ years of experience, allows our private equity clients to leverage intricate knowledge of the industry and locate the right talent across disparate pools.
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Tapping the right talent pool may require casting a wider net. Sometimes, that’s how you bring in skilled and experienced leaders who can kick start immediately. Leveraging our cross-border connections and four-step verification process can ensure you get access to choice, curated candidates.
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Our hands-on private equity executive recruiters have extensive experience working with private equity-backed companies. Clients are typically $50 million in revenue to Fortune 1000’s. Successful placements span the entire C-Suite – CEO, Chief Operating Officer, Chief Financial Officer, Chief Marketing Officer, and include vice president sales, general counsel, operating partners, and other director-level leadership roles.
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