Given the frenetic pace of private equity deals, exits and fundraising in 2021, we recently sat down with Bianca Moreno and Dean Nacey — two senior SPMB Partners who serve our private equity clients and their portfolio companies from coast to coast. In this Q&A, Dean and Bianca discuss their observations and first-hand experiences building effective PE leadership during this record-breaking year for the private equity market. They also explore areas that have compelled some PE firms to evolve their business strategies and enlist the expertise of executive search firms over the past 18-months based on the impact and their learnings from the global pandemic.
Did COVID-19 leave a lasting impact on the PE sector and how did it impact talent and leadership at PE firms and their portfolio companies?
“The uncertainties that COVID introduced across our economy created an initial reluctance for operators to leave current roles, and triggered a hiring pause directed by investors and CEOs in Q2 and Q3 of 2020. However, over the last year, technology and software as an industry demonstrated tremendous resilience, and as such, much of the talent landscape has rebounded. We are now seeing unprecedented demand for the talent that drives revenue and EBITDA goals, primarily CEO, CRO, CMO, and Customer Success leaders.”
— Dean Nacey
What does the skill-set of a leader look like for a PE firm? How does this differ from past years?
“Like any industry, a leader’s skill set will vary based on a specific organization’s needs and objectives; private equity is no exception. Software and technology as an asset class has attracted more investment in the past year than anytime previously, and every firm has specific strategies and tactics to drive value creation. Based on SPMB’s forty years working with PE clients, there are three key behaviors and skills that are emphasized in almost every portfolio:
- Operating excellence: the ability to accurately define, forecast, and achieve revenue and KPI targets.
- Boardroom collaboration: there is often significant oversight and collaboration from Board Directors to define and set expectations and target deadlines, which is not always the case in other ownership structures.
- Thoughtful investment: operators must have the ability to identify (and communicate) which teams, tools, and processes to invest in based on projected ROI.”
— Bianca Moreno
What are some of the biggest challenges in recruiting leadership for PE firms?
“Oftentimes operators have a misconception of private equity and equate it to an industry that is solely focused on cutting costs and creating efficiencies. In many instances this is true, but there are a number of strategies and tactics PE firms implement to generate value that can include a combination of top line revenue growth, increasing EBITDA, and complementary M&A. Prioritizing these outcomes are foundational, and unique, to every investment. When recruiting operators you must be deliberate in who you target and how you position the opportunity and potential outcome. It is equally essential that the equity component of an offer, and thus the wealth creating opportunity, is specifically and comprehensively communicated as the financial mechanisms of each PE firm and deal are unique.”
— Dean Nacey
Why should PE firms use executive search firms to fill positions on their leadership teams and portfolio companies rather than hiring internally?
“There is a tremendous amount of value an experienced executive recruiter can provide. The best recruiters not only offer a deep network in the markets they serve, but also context and insights about past company strategies, both successful and unsuccessful.
Equally important — executive search firms are exposed to the most crucial talent information as it pertains to transactions, internal politics, upcoming events, value creation details, and operating cultures. This information, paired with the ability to reference candidates with a variety of former colleagues and teams, allows the best search firms to provide a comprehensive narrative about a candidate’s experience and operating style. In turn, this thorough up-front due diligence better positions the executive for long-term success and the company for sustained value creation.”
— Bianca Moreno
How do search firms help with DEI efforts at PE companies? Have they been successful? What do you expect to be done going forward?
Bianca noted, “there are short and long term aspects to achieving DEI initiatives within the private equity space. Recruiters are in a unique position to help diversify executive level talent by recruiting externally, but equally, they can partner with clients to help define long term behaviors that will achieve multi-year DEI goals. This could include a recruiting plan targeting next generation executive level talent, coupled with deliberate training and a specific career path plan to help develop the next generation of executive leadership.”
Dean added, “the recruiting firms that can help their clients achieve their DEI initiatives in parallel with their growth and business objectives will distinguish themselves as industry leaders and true changemakers.”
— Bianca Moreno & Dean Nacey
If you’re a private equity firm looking to add to your portfolio companies’ leadership team or seeking general advice on hiring, please contact Dean or Bianca directly or visit us at SPMB.com.