Private equity sponsors have never relied more on stellar management teams to drive return on investment. Yet in their effort to acquire high-impact human capital, funds often unknowingly leverage outdated or inefficient processes that hinder their ability to land true “best athletes.”
Chief among these practices is a rigidity in the experience required for the role. The more qualifiers a sponsor adds to their search criteria for a portfolio company executive, the smaller the pool of viable candidates becomes. Many “non-negotiables” are rooted in traditionalism, yet private equity’s rapid expansion has made it so demand for candidates with proven PE-backed C-suite success far exceeds supply.
“Roughly ten years ago, there were about 4,000 private equity portfolio companies in the U.S. Today, there are more than 8,000. Factoring in retirement, the pool of traditional executive talent is not growing at nearly the same rate. We are seeing more portfolio companies being capably led by people who did not have prior experience in private equity or as a CEO or CFO,” says Falcon’s Rob Huxtable.
An over prioritization of candidates’ backgrounds compared to their skillsets is a common impediment to talent acquisition. Sponsors may become enamored with a single, specific candidate background during a search process. This fixation often unnecessarily shallows the pool of viable talent.
The trouble with a background-centric approach is it ignores what is most vital to value creation: the skillset. There are few executives who possess the unique blend of skills, traits and demeanor needed to create a compelling exit for sponsors. Sponsors who set rigid expectations around business model, end market and positional history risk eliminating capable candidates from consideration and winding up with a comparatively small pool of eligible executives. Sponsors who remain open to adjacencies in these areas ultimately position themselves for a...