This week ended on a sour note as one of my consultants lost a contract with one of our clients. It wasn’t his fault as the client company did not realize that their Private Equity owner had a resource to fill their need. Unfortunately, those situations are not uncommon. It is a fact of life in the New Normal.
As I have written so much about my work with Private Equity Groups (PEGs) and their portfolio companies it makes sense to explain what they do and how they operate. PEGs have been reshaping American Industry across all segments. They are significant to the job market. It is important to understand how they manage their selection process and what they look for in new hires. If you are not currently working in a PEG Portfolio Company, you probably will before the end of your career.
So, what is a Private Equity Group? A PEG secures its funding from high net-worth Individuals to make investments in undervalued small to mid-cap companies. They will generally take a controlling position in the target company up to 100% ownership. Their goal is to improve results in a three to five-year period allowing them to sell at double their investment, more or less. They may invest in companies with significant growth potential but having difficulty raising capital. PEGs have been known to invest in companies whose owner wants to cash out or to buy out other investors. Their fundamental investment goal is to find companies that can benefit from their expertise and generate a significant capital gain after a defined holding period. PEGs are looking to grow revenues, improve productivity (read systems and processes) and eliminate waste.
Types of PEG Transactions
- Turnarounds
- Public to Private
- Divestitures (Carve-Outs)
- Family Business Exit Strategy
- Funding emerging brands needing capital
If the target company didn’t have a fast-paced, high-energy culture prior to the PEG involvement, it will afterward. This is especially true early on as the two groups learn to work together. The level of communication and thirst for data by the PEG is intense. Redundant, unnecessary, or functions better handled by a third party are eliminated resulting in a more streamlined organization. The remaining team members are expected to pick up the slack. Accountability is expected. If the CEO cannot meet his objectives he will be replaced. So, when looking for people to hire a premium is placed on people who are self-sufficient, self-reliant, and can tolerate the stress of a high-intensity organization. Is this that much different from most major brands?
The PEGs I have worked with are directly involved in hiring the CEO as one would expect, as well as the CFO. Depending on the nature of the transaction, the CEO may or may not stay on after the investment, however, the CFO is usually replaced. This is not uncommon for most acquisitions as the new owner wants “their people” in key positions. The first task for the new CFO is usually to get control of cash flow and to install a KPI Dashboard. Other hires are the responsibility of the Executive Team with the customary courtesy interviews by the PEG Executive responsible for oversight.
PEGs place a high value on specialized experience when recruiting talent for their Portfolio Companies. They do not have time or interest in on-the-job training. They seek people with solid educational credentials, whose careers include work with respected brands. Industry segment experience is the base-line. If the Portfolio Company is a small to mid-cap brand then experience in a small to mid-cap company is required. There is a preference for people whose careers are ascending. Sure, there may be a preference for someone who is younger and hungry, however, experience and success trumps age. A recent history of short-tenured situations is a big red flag. As with any hiring authority, there may be certain quirks to their selection process. One client, disqualified people who had stepped out of the corporate track to try their hand in an entrepreneurial venture; whereas other clients valued that kind of experience. In most respects, a PEG’s selection process is similar to any other well-managed company, except for the specific experience they may require.
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Jim Weber, Managing Partner
Author of: Fighting Alligators: Job Search Strategy For The New Normal
Current Assignments
1. COO- Atlanta-based Casual Dining Restaurant Company – New
2. Controller – Atlanta-based Consumer Products – Digital Company – Completed
3. Director of Biz Dev, Atlanta-based B2B Professional Services Company: Completed
4. Payroll-Benefits Manager, Atlanta-based Retail Company: Complete
5. Senior Accounting Manager – Atlanta-based Manufacturer. Complete
6. Controller – Atlanta-based Restaurant Company: New
7. Outplacement Assignment – Atlanta-based Manufacturer: Complete