Private Equity - Talent Strategies For Portfolio Success
The private equity market is picking up, and signs of recovering deal activity offer a more promising outlook for 2024. It’s still a challenging investment climate though, and firms must act smart, managing for both resilience and future growth. We take a look at three key ways in which PE is working with interim executives, fractional leaders and freelance consultants to lay the foundations for long-term investment success.
The first year of ownership
Whatever the context - post-merger integration, minor restructure, carve-out, or total turnaround - the first year of ownership is critical for tone-setting, cultural shift, and identifying value creation opportunities. It is also the time of highest scrutiny, as stakeholders seek reassurance around strong investment performance and a positive long-term outlook.
The current landscape, where dominant themes range from talent scarcity, a constant stream of technical and data innovations, to spotlights on ESG and cyber security, calls for a wider circle of stakeholders at the value-creation table than ever before: hanging everything on one or two new C-Suite hires is a sure-fire way to swamp them. Portfolio management teams must be confident of their ability to support across an extremely broad spectrum of specialisms and external input from interim experts, advisors, fractional leaders and senior freelance consultants is increasingly viewed as essential.
Interim and fractional CHROs: setting a winning talent strategy
Financial engineering alone is no longer enough to generate superior investment returns. According to the Harvard Business Review, increased competition for attractive targets, more expensive debt capital, a high percentage of roll-ups and platform deals (where a number of companies are stitched together) and longer holding periods, means portfolio companies must demonstrate sustained operational excellence. In order to do this, PE must focus on developing collaborative cultures and portfolio company leaders who can inspire the business long-term. Deep expertise in HR and People are required, and an increasing number of funds are working with fractional and interim CHROs and CPOs to deliver talent strategies and leadership development.
A top ex-CHR who has worked in multiple contexts will be well-versed in ensuring alignment of talent strategy with the value creation plan. They will give expert guidance on the talent mix: which roles need to stay; who can sensibly manage themselves out; whether to bring in interim management or expert advisors (and if so, who, how many, and - crucially - when). They will also have the knowledge to advise around the intricacies of specialist reward structures and ongoing development / coaching of senior leadership and talent across the board - all of which are vital for retention.
Interim executives and expert advisors: steadying and steering
With roll-ups and platform deals often comprising smaller / early-stage businesses lacking in corporate infrastructure, interim CXO’s are becoming par for the course. An interim CFO can rapidly help to bring financial processes and reporting up to standard, paving the way for a longer term solution. A special projects or strategic operations profile can drive value creation opportunities identified during due diligence. A pricing specialist can give an expert view on broader pricing strategy to make sure pricing hurdles are preempted and tackled before they become a hindrance to growth.
And it's not just startups who benefit from specialist interim support. Irrespective of company size or scale, interim managers and advisory and experts in transformation, change integration, strategic operations, ESG, cyber security, and product are commonly sought out, particularly in the 6 months post-purchase. A seasoned expert can support a function during a permanent search and manage themselves out when the time is right. Given many senior interims are also open to permanent opportunities themselves, starting with a contract arrangement can be a great way for both parties to size each other up before committing.
Senior freelance consultants: eyes and ears on the ground
Unfortunately there is often significant tension between fund managers and portfolio company operators. A senior freelance consultant who has the resilience and comms skills to build bridges in tough environments, will be able to offer an objective, insider view on the temperature of the business.
A hugely valuable source of hard and soft data, these 'eyes and ears' can help with everything from sense-checking what investors are told at more clinical board meetings, to helping a new CxO put out fires before they even begin.
Choix connects the buy and sell sides of consulting, providing fair and transparent choice for all. If you want to talk to us about a project, or you’re looking to connect with our network of high quality freelance consultants and experts, please email hello@mychoix.com