September 16, 2024 | less than a minute read

Private Equity’s Top Value Lever: Outside Talent/hires into portfolio companies

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David Hunt

CEO & Founder

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David Hunt

CEO & Founder

This is interesting. We've certainly been involved in many projects where VC investors have instigated a change of CEO or other executives. Sometimes with the blessing and acceptance of the person (typically a founder) being moved aside, or out of the organisation. Sometimes that move is less welcome, or resisted, but it happens anyway. Investors win.

I've seen for myself that where we have helped hire new, outside CEO's and leaders, that company has gone on to grow and become more stable. With that in mind it wasn't a surprise to read this article, but interesting to see the data supporting replacement of CEO's and executives in Private Equity funded companies. This may be uncomfortable reading if you are a founder with, or seeking investment, but such are the realities of taking someone else's money.

It seems like whilst an inside succession brings benefits, a fresh outlook from a new hire trumps that in growth. Or so this data suggests.

What are your thoughts?

David

Picking an outside CEO seems to have paid off. The average PE fund formed between 2010 and 2016 outperformed the S&P 500 by 22 percent, according to the research. It also paid off for the CEOs. Chief executives of PE funded companies received lucrative incentives that often included up to 10 percent of equity upside. “The research is clear,” said Cody Crook, managing director of Hunt Scanlon Ventures. “Hiring from within often manifests itself in stagnant, slow growth environments. What PE operating partners have figured out is that talent – especially at the top of an organization – is the critical value creation lever. In case after case, that talent is injected from the outside,” he said