The private equity industry is currently the primary driver of growth at recruiting businesses across the United States. According to research group PitchBook, upwards of 40,000 deals involving venture capital or private equity funding, mergers or acquisitions were completed throughout the country last year.
Indeed, the sector as a whole has been thriving. Last year, private equity companies in the United States received a total deal value of $713 billion from a record 4,828 transactions, an increase of 17.2% and 5.5% over 2017. According to industry data supplier Preqin, private equity companies have raised $3 trillion in the previous seven years. And, for better or worse, $1.14 trillion in dry powder is waiting to be used.
Private equity firms have been forcefully pushing in their way, not just rejecting the headwinds affecting other businesses but also plainly past important inflexion points for development. “We’re seeing tremendous reserves of dry powder on tap, and with it, sky-high values,” says Dominic Lévesque, president of Tatum. It’s no surprise, however, that Pitchbook’s ‘2021 Private Equity Outlook’ is rife with broken records.
Consider the following projections, according to Mr. Lévesque: PE financing is predicted to reach an all-time high of $330 billion in 2021; overall transaction value for carveouts this year may set new highs; and at least 20 PE-backed firms are likely to go public in the United States via reverse mergers with special purpose acquisition companies. As a consequence, it’s no surprise that private equity firms are putting more emphasis than ever on hiring the right people in the right roles at their portfolio companies and developing senior leadership teams to drive growth.
Technology is changing the way people work, and forces like artificial intelligence and machine learning are poised to wreak much more havoc. According to a recent McKinsey & Company analysis, the subsequent job displacement may be vast—think Industrial Revolution gigantic, affecting as many as 800 million people globally by 2030 and pushing up to 375 million of them to move occupational categories and learn new skills. Companies are already starting to feel the heat. According to a recent McKinsey poll, over 60% of worldwide executives believe that up to half of their organization’s employees would need retraining or replacement within the next five years.
Another 28% of CEOs anticipate that more than half of their personnel will require retraining or replacement. According to the consultant, more than one-third of survey respondents stated their firms are unprepared to handle the talent gaps they foresee. Private equity companies are searching for elite personnel more than ever before to overcome such challenges and continue to generate value for their investors. Finding the greatest CEOs for their portfolio firms is not only critical these days, but imperative in the long run.
Finding such individuals who can add value is becoming increasingly difficult, which has resulted in the executive search industry’s recent spectacular expansion throughout the sector. The skill pool is shrinking as Baby Boomers retire. Finding good workers is also becoming more challenging due to near-full employment.
Not sure if it’s a crisis, however, the stakes are bigger than ever. The stakes are bigger than they have ever been. Because there is so much money at stake right now, and transaction values are so high, it will need performance, and that includes leadership, to generate the returns.
The number of funds is at an all-time high. Not only are the sums themselves enormous, but they have yet to be spent. With so much dry powder on the market, the prices are exorbitant.
And once they’re really expensive, you’ve got to produce a multiple in order to truly obtain something for which you spent a lot of money, and you’ve had to make so much in extra revenues simply to break even on the agreement. This puts significant pressure on the talent equation.
According to Shawn Cole, managing partner and president of Cowen Partners, the CFO is the most typical change-out function for many PE companies, either post-recovery following COVID and/or during an acquisition or post-acquisition. “We are witnessing acute shortages of CFOs with both domain knowledge in the particular private equity portfolio company’s business line and past successful private equity experience,” he added.
We have entered “the talent age,” a new era in which technology no longer trumps skill and talent is quickly becoming the key to success. Suppose the profits would have been driven considerably more by people than by genuine products or services if you look at both private equity companies and public corporations and find the ones that have outsized returns. It goes to reason that if you want to maximize your investment, you should maximize the personnel. That costs money and necessitates technical skills offered by the human resources function; as a result, leaders and boards must spend more substantially on that function.
Organizations must have a comprehensive plan to increase value. A holistic approach entails strategic human resources as opposed to transactional human resources. So it begins with the same type of energy focused on a personnel strategy that you’re probably putting into a business strategy investment right now.
The private markets are witnessing an increase in fundraising (many funds are oversubscribed), a considerable rise in deal activity, and increased multiples. We are finding that the PE and VC sectors have enjoyed quite a resurgence and are outperforming the public sector in many situations. Fundraising across PE and VC has been strong since the onset of the epidemic, as investors appear to be yearning to get into the private markets given the greater potential profits. PE investors, in particular, are working with a larger risk tolerance, and they are doubling down rather than pulling back as they did in the aftermath of the 2008 financial crisis. As a result, there are more prospects for recruiting and hiring new leaders.
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, and include vice president, general counsel, and other director-level leadership roles.
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