At Axle Equity Partners, we often meet or are introduced to executives who are looking for a role in a private equity-backed business and either ask us for our advice or even directly for a job! Below is a summary of the tips that we give to these executives.
Why would I want to work for a PE-backed company?
Executives who have worked for PE-backed companies typically indicate that they enjoy working with financial sponsors to determine the business’ strategy and have a high degree of autonomy to make decisions to drive performance of the business within agreed plans. PE-backed companies also have a sense of urgency to achieve results, a lack of bureaucracy around decision-making and can offer executives who are part of the management incentive plan very attractive financial rewards.
There has been a gradually growing cohort of serial PE executives who have built very successful careers by working with and investing in multiple PE-backed companies. PE firms certainly place a high value on working with executives with past PE experience because those individuals will already be up the learning curve with how financial investors like to operate.
Why might working for a PE-backed company not be for me?
The reality of working for a PE-backed company is that there is a 100% chance that the business will be sold at some time in the future once the growth and business improvement plans have been achieved. Therefore, executives who have difficulty dealing with ambiguity and a fast-paced environment, or who are more “9-to-5” types who prefer very stable, salaried employment without rapid change, may not thrive in a PE-backed company.
Ultimately, executives must be willing to back themselves, their judgement and decisions to thrive in a PE-backed company.
Aren’t PE firms all just asset-strippers and “slash and burn” merchants with a “quick flip” focus?
PE firms across the spectrum have a very wide range of investment focuses, ranging from growth-focused investors into SMEs such as Axle Equity Partners through to medium and large leveraged buy-out firms, turnaround investors and more yield focused investors.
Therefore, it is a bit of a myth that PE firms are all focused on short-term cost cutting and asset-stripping measures, but it has certainly been an enduring one. Whilst this may have had some validity a few decades ago, in the current environment PE investors are focused on improving the businesses into which they invest and mostly have a focus on growth. Being able to demonstrate that a business has grown and is likely to continue to grow is the most compelling way to generate shareholder value for a PE investor.
Lastly, PE firms are by their nature serial vendors of businesses and therefore consider their reputation as good owners of businesses to be very important.
How do PE management incentive schemes work?
For financial investors, alignment with the team that is actually delivering the value is critically important. As a result, the senior management’s participation in a management incentive scheme is a key part of the decision to invest in a business for a PE investor. For executives, participation in a management incentive scheme can be a path to very significant/”life changing” wealth generation if the portfolio company in which they have shares performs at or above expectations.
There are many different ways in which a management incentive scheme can be configured, but it typically involves the executive making a meaningful equity investment in return for a scheme such as limited-recourse interest-free loans, an option plan or a performance-based ratchet that “turbocharges” the executive returns.
The quantum of personal equity investment will obviously depend on the individual’s circumstances, but is typically an amount of money that is significant to the individual without being financially crippling in the event that the investment is lost. For executives without personal savings or the ability to draw down on a mortgage, it is sometimes possible for the “hurt money” to be contributed by way of bonus or salary sacrifice.
I am an executive looking for a role in a PE-backed company. What advice can you give me?
First and foremost, the best way to find a role in PE-backed company is to introduce an investment opportunity to a PE investor. PE firms are always on the lookout for good businesses to invest in, and will be all the more interested if there is a knowledgeable executive who has originated the opportunity and willing to invest their own money alongside. Executives with significant experience in certain industries and who have an entrepreneurial mindset should be very well placed to come up with good investment opportunities into which they would be keen to make a personal investment alongside a financial investor.
Otherwise, specialist recruiters such as Derwent Executive and Allura Partners are often retained by PE firms or their portfolio companies to fill roles that may arise.