BULL OR BEAR?

“What are the key success factors for a Private Equity CEO that are equally relevant to his or her executive leadership team?”

According to a 2017 Alix Partners survey, 73% of Private Equity CEOs are replaced during the investment life cycle (usually five years) and 58% are gone within two years. So, what are the questions you should ask yourself if youâ€re considering moving into this high pressure/high reward position? Here are five:

• Can you be satisfied executing the predetermined Private Equity sponsor strategy prebaked into the investment thesis rather than formulating an original business strategy?
• Can you cope with tight and frequent oversight by the Private Equity sponsor/board members with a board meeting or board call at least once per month?
• Can you make rapid decisions with incomplete information including the removal and replacement of senior executives who are not doing the job you need done?
• Can you wear multiple hats – for example, CEO/COO/CAO all rolled into one — and consistently multi-task without contracting attention deficit disorder?
• Can you focus on EBITDA above all other performance measure, even at the expense of growth if necessary to exit well?

OPINION: BULL
If, after some genuine introspection, you can honestly answer the questions above in the affirmative you may be better off as a CEO than dealing with quarterly earnings releases and related analyst conference calls, often hostile activist shareholders, and short-term hedge fund driven stock price gyrations that often characterize the public markets these days.

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BULL OR BEAR?

by Mitch Wienick

“A move up should be a move up.”

If you have had several quick job moves recently you need to have a credible explanation. Be candid and upfront, acknowledge that the changes have been quicker than desired and be prepared to explain what happened. You may be able to point to disruption in your industry, as is common these days for many industries, as the prime reason.

Notably, if you are in a private equity situation a relatively quick exit is not uncommon. As of 2015, the latest information available, data provider Prequin calculated that the average time private equity firms hold an investment has declined to 5.5 years from 5.9 years in 2014. And the penetration of private equity firms is growing. In 2013 Bain estimated that private firms in the United States controlled 23% of midsized companies (defined as having an enterprise value of $100-500 million) and 11% of large size companies (those with enterprise values above $500 million), up roughly five-fold in total from 2000.

A major reason for shorter hold times for Private Equity firms is that institutional limited partners such as pension managers, endowment investment officers, and wealth advisors for high net worth individuals or families are pushing private equity general partners for higher internal rates of return, thus signaling better performance, and longer hold periods tend to erode this key measure. So, if you’re employed by a private equity controlled firm, your tenure is pretty short compared to pre-private equity historical norms.

Relatedly, a 2017 study of C-Suite tenure done by the Korn Ferry institute shows that the average tenure for a C-Suite executive is 5.3 years with CEOs being the longest tenured and CIOs and CMOs being the shortest, though the numbers vary depending on age and industry.

The key takeaway for executives appears to be straightforward. If you have stayed in your last few roles for five years or more you do not need to be defensive about your work tenure history. On the other hand, you need to carefully craft your rationale for quicker departures, especially if they happened consecutively, to convince a hiring organization or executive recruiter that you should be the preferred candidate for your next role.

OPINION: BEARISH
Fast upward leaps may not secure long-term success. Given the rapid state of change and innovation throughout industries and functions, a more balanced ascent that includes a mixture of lateral and upward movement will pay off. A strong ‘generalist’ view of the business, including knowledge of finance, sales, operations, and marketing, and how to communicate with and manage people, is increasingly becoming the determining factor in making it to the top executive ranks.

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softoneit.com | 610.293.1115 | mwienick@softoneit.com

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