Private equity firms are disciplined about most things: deal sourcing, diligence, and value creation plans, among them. But when it comes to succession planning, according to AlixPartners’ 10th Annual PE Leadership Study, the data suggests a blind spot.
According to the study, only 26% of PE-sponsored companies have formal succession planning programs in place. The study also found that while PE-backed organizations perform similarly to their corporate peers in informal talent development, they lag meaningfully in formal leadership processes such as succession planning, performance reviews, and structured development pathways.
The Importance of Proactive Leadership Transitions
AlixPartners found that 42% of portfolio company executives experienced CEO turnover during an organization’s hold period, and 61% of that turnover happened more than a year after acquisition. Further, 42% of those CEO transitions were unplanned and driven by the PE firm itself.
In other words, leadership change isn’t just happening often; it’s happening late, and frequently without a plan in place to address what’s coming next.
The implications of unexpected turnover are significant. Unplanned transitions disrupt momentum, unsettle teams, and have the potential to extend hold periods, especially when they happen mid-hold, long after the initial 100-day plan has faded.
Why It Happens
Unlike large public companies, many portfolio companies operate leanly. Given that the focus is on near-term value creation, leadership development and succession planning often fall into the “important but not urgent” category.
Shorter hold periods and deal timelines can also create a sense that succession can be addressed later. However, the data shows that “later” often becomes an unplanned inflection point.
Succession planning may feel like a long-term HR exercise, but in private equity, it’s one of the best forms of risk management available.
What High-Performing Sponsors Do Differently
Fortunately, this is a solvable problem. PE sponsors and portfolio companies should view succession planning as a risk-mitigation tool and a process that can be embedded in the value-creation playbook. A few best practices include:
- Build succession into the investment thesis. Leadership risk should be assessed during diligence. Firms should be thinking about bench strength and potential successors as an important element of closing the deal.
- Develop leadership pipelines across the portfolio. Create internal executive networks or cross-portfolio leadership forums to share talent and best practices. These are scalable ways to build readiness across multiple companies and develop talent across assets rather than within silos.
- Engage early and often. Instead of reacting to performance issues, sponsors should hold structured, twice-yearly discussions with management about succession, readiness, and emerging talent.
- Partner with trusted advisors. Experienced executive search partners can help design proactive talent strategies to mitigate risk by mapping internal potential, benchmarking external candidates, and ensuring continuity when transitions are needed.
The Townsend Perspective
At Townsend Search Group, we’ve seen firsthand how proactive succession planning protects and drives enterprise value. Whether navigating a founder transition, addressing mid-cycle leadership change, or preparing for exit, having a plan, and the talent bench to execute it, is critical to reducing risk and preserving momentum.
Succession isn’t just about who comes next. It’s about what happens next, and how momentum is sustained, how culture evolves, and how value continues to compound even through leadership change.
In an environment where talent is the ultimate multiplier, waiting for a problem to arise often leads to harmful disruption. Having a plan for succession helps drive growth.
About the Author
Alexandra Ochalek is a Director at Townsend Search Group, specializing in C-suite placements for middle market and lower middle market platforms nationwide. An accomplished corporate attorney and finance professional, she brings a wealth of experience in advising founders, investors, and emerging growth companies in dynamic, high-stakes environments and complex transactions.
