Bain & Company recently released an analysis titled “Searching for Momentum: Private Equity Midyear Report 2024” (the “Report”). Here’s how Bain frames its findings: “The industry appears to have finally found its footing. Now comes the hard part.” Among the many challenges that constitute this “hard part,” one stands out from our perspective, which is finding and developing C-suite talent capable of navigating the complex landscape of today’s private equity-backed companies.
As the PE landscape continues to evolve, the demands on portfolio company leaders continue to shift as well. Below we highlight some of the key findings from the Report, and how they may impact talent acquisition and retention priorities.
The Expanding PE Portfolio Challenge
According to the Report, private equity firms are now managing a portfolio that’s twice the size it was a decade ago. This expansion has intensified the challenges of hiring and retaining top-tier leadership talent. With more companies to oversee, PE firms and their portfolio companies must have access to a steady stream of C-suite leadership candidates in a highly competitive talent market. Moreover, the retention of top talent is equally crucial, which underscores the importance of creating a compelling value proposition (compensation, advancement opportunities, culture, etc.) to retain talented leaders. A key component of this value proposition is the equity incentive portion of compensation, which is integral for aligning incentives and retaining great leaders for the long term.
Shifting Focus: From Multiple Expansion to Operational Excellence
The Bain Report emphasizes that “multiple expansion has been a key driver of portfolio company performance for years. But in a high-rate environment, the premium will be on producing margin and revenue growth.” This shift has significant implications for C-suite talent acquisition. We’re seeing more portfolio companies prioritizing executives with proven track records in driving operational improvements and sustainable, long-term growth.
Mastering the PE-Management Dynamic
The Report also highlights the importance of “effective collaboration between PE operating teams and portfolio company management.” This unique dynamic between PE funds and their portfolio companies means that the recruitment of leaders who can leverage the PE fund’s expertise and resources to build operational excellence at a portfolio company must be a top priority.
Exit-Readiness: A Constant Priority
Finally, the Report highlights that “exit deal count remains dormant” and emphasizes the growing importance of “finding ways to generate distributed to paid-in capital (“DPI”) strategically across the portfolio.” Accordingly, portfolio company leaders must be dually focused on preparing companies for eventual sale or other exit while driving performance. The Report suggests that this ability “may determine which funds meet their fund-raising goals in the years ahead.”
Conclusion
A significant aspect of PE’s challenge—the “hard part”— lies in finding and placing the right portfolio company leaders. For PE funds, partnering with an executive search firm like Townsend Search Group that understands today’s unique environment and identifies candidates with the specific capabilities needed to drive success is crucial.
