The Right Fit: CEO’s Excelling in Private Equity
Criteria for selecting a CEO in Private Equity firms
The hunt for CEOs in Private Equity is a crucial task. Private Equity firms are very picky when choosing a CEO to run their portfolio companies. The search for a CEO that can be around from the beginning, middle and end of an acquisition strategy is very daunting. Here are some criteria that Private Equity firms prioritize when selecting a CEO:
- Avoidance of CEOs with long-term tenure in large companies due to the exit strategy ranging from 5-10 years.
- Replacing the initial CEO within the first two years to align with the exit strategy.
- Preference for a CEO with a minimum P&L of 25M and quick results.
At Blackmore Partners, we understand the importance of finding the right CEO who can help drive the success of our portfolio companies. Our rigorous screening process ensures that we find the best fit for our clients. Our focus is on prioritizing quick and reliable results whether it’s through an add-on or a pivot. By finding the right CEO, we can ensure that our portfolio companies reach their full potential and provide maximum value to our clients.
Private Equity CEO Compensation and Hiring Trends
According to ZipRecruiter, Private Equity CEOs in the United States earn an average of $110,089 per year, with top earners making as much as $220,000 annually. However, there is a wide range of salaries for Private Equity CEOs, with skill level, location, and years of experience playing significant roles in compensation.
- 71% of companies purchased by Private Equity firms in large leveraged buyouts hire new CEOs under Private Equity ownership
- Over 75% of these new CEOs are external hires, and 67% are complete outsiders
This contrasts with studies of public companies, where 72% of new CEOs in S&P 500 companies are internal promotions. The compensation for Private Equity CEOs is higher than that of similarly sized public companies but slightly lower than that of S&P 500 CEOs.
External CEOs with experience in public companies can bring advantages to Private Equity firms. However, they must understand that Private Equity firms tend to hold tighter reins and are more involved than they may be used to. The CEO must be willing to work side by side with the PE firm and not feel as if they are being micromanaged.
Skills required for a CEO role in Private Equity are transferable, and experience is not the main criterion looked at by Private Equity firms. However, the CEO must not be shaken by the involvement of the Private Equity firm and must be willing to prioritize quick and reliable results.
What Private Equity firms seek in CEOs
A c-suite candidate must understand the culture of the business they are about to take over. They must understand the nuances of the culture and how they may increase revenue for shareholders without hurting the culture. They must be empathetic to past pitfalls the company has experienced.
Understanding Company Needs as CEO:
A new CEO must know the industry well. A good CEO will also know the company and understand the needs of the company. A CEO must show the Private Equity firm they are capable of meeting shareholder goals.
Gift for Gab:
To succeed in leading a portfolio company, a CEO must possess exceptional communication skills. They should be capable of effectively communicating with shareholders while being transparent and honest. Confidence is crucial in their communication style, allowing them to convey their message convincingly to the board and all stakeholders.
Adapt to Thrive: Tech Trends:
In today’s constantly evolving world, staying up to date with technological advancements is crucial for any CEO taking over a portfolio company. The ability to adapt to new technologies and trends is essential for success. Private Equity firms look for CEOs who can present an investment thesis that is not only executable but also adaptable to the rapidly changing technological landscape.
CEOs must not stand on the sidelines with outdated technology but rather embrace change and utilize it to their advantage.
CEOs who aspire to succeed in the private equity world should focus on understanding the goals of both the target company and the private equity firm. During the interview process, they should be prepared to articulate how their own goals align with those of the company they are looking to take over, and how they plan to achieve those goals in a realistic and attainable manner.
To be successful in the private equity world, a CEO must do their homework and have a deep understanding of the company’s history, culture, and potential for growth. They should also be aware of the private equity firm’s investment thesis, risk appetite, and exit strategy.
If you’re a C-suite executive who is interested in excelling in the private equity space, we invite you to check out our upcoming conference in August. Our conference will provide you with valuable insights and networking opportunities to help you navigate the private equity landscape and succeed in this dynamic and challenging environment.
Click here to see the details.
Selecting the right CEO for a private equity firm is a critical task that requires careful consideration. Private equity firms prioritize CEOs with a cultural fit, understanding of company needs, excellent communication skills, adaptability to tech trends, and clear goals.
The compensation for private equity CEOs is higher than similarly sized public companies, and hiring trends for new CEOs are different from those of publicly traded firms. To succeed in the private equity space, CEOs must do their homework and have a deep understanding of the company’s history, culture, and potential for growth.
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Written by Byron Cowan
Edited by Niyati Sharma