Insights into a successful search in the PE industry

This week we sat down with Ed Michelsberg, Managing Partner and Private Equity Lead at Emu. In this interview he shares his insights into what’s needed for a successful search in the PE industry - from both a client and candidate perspective. We explore the current interest in PE/VC leadership roles, the qualities required to succeed in a leadership role and predictions for the industry over the next 12 months.

When you tell a potential candidate you are recruiting for a PE/VC investee company what are typical responses?
Talented and ambitious executives are typically interested in the prospect of working in a PE or VC-backed organisation. Key points of attraction are the ability to make a meaningful impact in a rapidly-scaling business that's looking toward a liquidity event within a specific time frame, along with the opportunity to financially participate in the upside of the exit.

Do PE/VC firms recruiting for investee companies outline different or additional requirements to other clients?
Every search assignment we undertake on behalf of a PE firm has its own unique set of requirements relevant to the position, and the business. There certainly are additional competencies and behaviours that are looked upon favourably. The pace of change and level of transformation that often needs to take place in an investee company is not for the faint-hearted. The DNA we commonly look for is ambition, resilience, collaboration, the ability to perform under pressure, and the ability to drive outcomes. 

Do you explain to candidates different requirements for PE/VC investee companies compared to other clients?
We do. It's a different landscape and we need to set that expectation and assess people accordingly. When operating in an investee company, one major difference is the exposure to working with PE shareholders which can feel a world apart from dealing with external Boards, or family owners/operators. PE shareholders are often viewed more as an extension of the management team, and they can be more operationally active in the portfolio business. More often than not this is of great benefit, but executives working in this ownership structure need to navigate the intricacies and demands of those diverse stakeholder groups. 

Demand for recruiting executives for PE/VC investee companies obviously reflects the state of the private capital industry and wider economic conditions. In your view, where are we currently placed on that scale and what are your predictions for the next 12 months?
There is still a healthy demand for game-changing talent within portfolio companies - not quite at the frenetic levels we experienced between 2019 and 2022, but 2023 has witnessed somewhat of a return to normality. Through COVID, businesses fiercely competed for leaders with digital and transformative skills. Now there appears to be a need for leaders who have track records in delivering growth within tighter economic frameworks. With a record ~$23b in dry powder in the Australian private capital industry it’s an exciting place to be in right now, though it does need to navigate structural challenges. Deal flow has remained subdued throughout FY23 as investors, fundraisers, buyers, and sellers alike, faced persistent inflationary pressures, interest rate hikes, and continued geopolitical tensions. But Australia is well-positioned to continue growing its status as a highly attractive market for investment on the global stage.

 

Executive recruitment for PE/VC investee companies is a strong indicator of the sectors in which the industry is investing. From your private capital backed clients what do you see as the current favoured and less favoured areas? Have you tracked any trends over the years?
The mid-market continues to thrive - interestingly, a few global firms have more actively sought deals in this space. In terms of industry verticals, healthcare, education, and essential services prove to be resilient and buoyant. Many niche and high-tech manufacturing and distribution businesses are also performing well. Some areas within consumer markets, especially those reliant on discretionary spending, are doing it tougher. The Tech industry is a mixed bag, with some firms continuing to soar, while others are culling staff numbers at eye-watering levels.

In terms of some macro trends we have noticed

1.      ESG investing is really taking off and we expect to see more activity there

2.      There’s increased activity in the turnaround and special situations firms

3.      The growth of private credit will continue

4.      The IPO market is still relatively flat, and I think we’ll likely see more public-to-private transactions - particularly the ASX300+ who are less liquid

5.      PE-owned companies may stay under that ownership structure, or within a continuation fund, in the current climate where exits appear more challenging

 

What are the main roles currently being sought for PE/VC investee companies (CEO, CFO, marketing manager, customer relations etc)? How has this changed over recent years?

Finance and Marketing have been the two core functions where we have experienced the greatest demand over the years. The CFO position is the one most new PE owners will seek to recruit first. We have also been busy hiring Chief Marketing Officers for portfolio companies - marketing is a huge lever for success within every business, and similar to the CFO, the skills demanded of a modern CMO have changed quite rapidly over the last few years. We have also seen strong demand in Sales, Customer, People, and Product.