What are the key competencies to work for a Private Equity portfolio company?
After working as a portfolio company CEO for three PE firms and through two successful exits, I would like to share my experience working in a PE environment.
Private Equity firms primarily focus on financial return, as it impacts not only the directors’ compensation but also their ability to raise their next fund. So, it is only natural that PE firms look for executives who consistently deliver financial results. Ultimately, MOIC (Multiple Of Invested Capital) and IRR (Internal Rate of Return) are the two key metrics. To their credit, PE firms generously reward executives who create value through large stock option allocations and “kickers” when the MOIC exceeds certain thresholds.
Executives who tend to succeed in a PE environment are those who are able to think strategically while making quick decisions, often with limited information, and successfully implement them. Time is of the essence because the average holding time is less than five years and the most successful companies tend to be sold even faster.
Communication with the PE firm is an absolute requirement, especially when the company hits a bump. In my experience, the most successful executives not only provide weekly trackers, but also supplement this formal communication with frequent face-to-face meetings and telephone calls to discuss successes and challenges. This informal communication helps build trust on both sides.
Last, but not least, you must be open to listening and taking advice. Compared to public boards, PE firms are much more involved in the operation of the business and expect to influence the direction of the business.
Private equity operating executive is a very interesting position, especially if you enjoy a fast-moving environment. But you need to deliver results as there is no place to hide.
How would you describe the Private Equity landscape today?
Private Equity is at a cross road, as they continue to raise more funds and are challenged to find attractive investments. On one hand, the number of buyouts declined in 2016 for the first time since 2009 (3,871 buyouts in 2016 representing $648 billion vs. 4211 in 2015 representing $653 billion). On the other hand, PE firms have more than $552 billion in dry powder and, when you account for the fact PE firms used more than 50% debt on average, this represents almost two years of transactions at the current activity level. This oversupply of capital has resulted in extremely competitive sales processes and increased valuation.
As a result, PE firms are eager to partner with executives who can bring them proprietary deals.
What type of companies are the most appealing to the Private Equity world today?
Private Equity firms invest across every industry, but most PE firms tend to specialize by deal size (middle market…), industries (B2B, B2C, Information Technology, Healthcare, Financial Services…), company stage (growth, turn-around…) and type of investments (majority or minority).
In 2016, B2B accounted for 35% of the transactions, B2C for 18%, IT for 15% and Healthcare for 14%. Most PE firms prefer growth companies with predictable cash flow and low capital requirement. This is why companies strive to sell their products and services as subscriptions. This usually translates to higher valuation as a multiple of EBITDA.
In term of size, most PE firms only invest in companies that generate at least $10M in revenue and are profitable and larger companies tend to generate higher multiples of EBITDA (everything else being equal).
Eric Grosgogeat is a successful Private Equity Chief Executive Officer. He has partnered with four PE firms, consistently generating strong ROI, most recently as CEO and President of FocusVision Worldwide, the leading global provider of technology solutions for the market research industry. Under his leadership, the company grew 4‑fold through acquisitions, global expansion and the launch of new services.
Eric recently led the sale of FocusVision to EQT, generating a 4X return for its previous investor. Before that, he sold the company to Thompson Street Capital Partners, generating a 3.5X return for Schroders and GE Asset Management.
Eric’s prior career includes notable positions at P&G managing Olay’s global franchise, PE‑backed Aurora Foods, leading the Frozen Food division and Philips as the head of Sonicare for North America.
Eric, a native of France, regularly travels the world meeting with clients, research agencies and focus group facility owners. He is a graduate of the Ecole Nationale Superieure de Chime de Paris, and holds a PhD in Chemical Engineering and an MBA in International Business from the University of Cincinnati.