What Private Equity is Saying Right Now

2023 has been an exceptionally challenging year for Private Equity (PE) firms and their portfolio companies. Interest rates have tripled, lending requirements are now more restrictive, and elevated costs are depressing margins. Everyday tasks such as fundraising, acquiring platform businesses, and selling assets at desired prices are much more difficult.

A recent quote from Atlassian’s co-CEO Scott Farquar resonated with us as it reinforced discussions we’ve been having with our PE clients (and their portfolio company CEOs), who have been proactive about making key hires to ensure they have the right talent for today’s current work environment: 

“I’ve read almost every business book there is around leading people and how to performance manage, but at the end of the day, the conversation I have with myself is, ‘can I look every person in the eye who works for me and say that I would enthusiastically rehire you to do the job you are doing?’ If the answer is ‘no,’ go back to the office today and work out what conversation you need to have with them.”

Brutal candor? Indeed. Yet, as business conditions and portfolio priorities change, new leaders with enhanced skillsets are necessary. It’s well-documented that the companies that excel, consistently outperform, and command the most value are almost always those with the best players in the right roles.

Over the past several months, we’ve captured key observations from these conversations with our PE partners and wanted to share some valuable takeaways from what many of your peers have shared:

Investing Now and Not Waiting Until “Next Year”:

  • Many sponsors focused heavily on improving their existing portfolio companies, with the expectation that optimizing existing teams will provide more bandwidth when increased M&A activity returns
  • New organic growth initiatives and add-on deals demanded executives with more scale
  • Amended business strategies required new skills that were lacking or additional domain expertise

Private Equity Firms are Focused on Revenue and Operational Leaders:

  • CEOs and CFOs are the key leaders most often singled out when discussing business performance. However, during times like these, there is extreme pressure on sales, and without the right commercial leader, there will be underperformance and costly consequences. A weak leader may bring about a painful exodus of your rising stars.
  • Increasing EBITDA will always be a top PE priority. This requires experienced COOs or Heads of Operations to eliminate waste, optimize, improve systems, set clear expectations, and bring in a culture of operational excellence using robust KPIs. The right operations leader quickly pays for themselves. They also ensure your business will be further professionalized and ready to scale.

Authored by Tom Shahnazarian, Kevin Hahn, and Jay Lane, Founders of Spectrum Search Partners, a Denver, CO-based retained executive firm that specializes in private equity. If you wish to reach out to us, please write to: tom@spectrumsearchpartners.com, khahn@spectrumsearchpartners.com, or jay@spectrumsearchpartners.com.