That is a larger question that is still not fully answered. What the period did do is move millions of senior executives into a place still called “transition”. Recessions repurpose people into new roles, new industries and all come out the other end. Once in a lifetime recession put people outside of the known system and new systems developed and emerge. The fact is the networking circuits, social media outlets and new businesses continue from the fall out. Where do the best executives go in a hard market; running companies under new professional financially centric management? Private Equity and Family Offices have become a temporary to permanent landing pad for executive talent. Both sides have needs and interest. Where do they meet and what do they talk about?
- Did the transitioning executive find Private Equity/Family Offices OR did demand create the need access to executive talent?
Pre-Lehman? Serial C-levels always existed. There were fewer, they knew who the investors were in their respective industries and as the executive transitioned, they stayed on each other’s radar. Fewer and better private equity/capital investors latched onto these executive resources and told them to follow us. This became the PE firms’ “bench” or “operating partners” or “guy or girl” we could go to. They finished a job, cashed the equity and knew it was coming. These executives knew of imminent transition and positioned themselves accordingly. Like an advisor there was mutual need and comfort in working with one another.
Post Lehman? Not enough serial proven C-levels in a world of more funds and private investment vehicles due to the market conditions of capital chasing yield in the middle market. The excesses in capital and deal demand for quasi proprietary deals are scarce and good executives in “transition” has never been higher. Immanent transition is now chronic transition.
Unrealistic expectations of Executives emerged by seeing their skills as transferable to private capital investors when their message and results were not so focused and demonstrated in smaller settings requiring soft, hard and agility skills. Both sides generally had unmet needs, required mutual understanding and a mismatch on who invests in what each other wants is and will always create problems in the relationship.
- Can executives find, create and manage a deal to the expectations of private equity and direct investing family offices?
Depends? Did the executive ever perform investment banking or corporate development functions in a certain industry. If they did and still well connected in a niche, perhaps they could. Many of these people however became the serial C-level pre-Lehman. To make it work both sides must have realistic expectations. Executives know executives in transition, executives can be industry experts or board sitters. Executives with capital to invest does change it somewhat. Skin in the game get investor attention.
There are recruiters and buy side bankers that package such executives into ready deal executives. That is the good part. The bad part is the that the corporate environment has left only the worst carve out possibilities and assets, the weaker middle market private companies and the more asset drained family owned companies. This is the result of a bad economy or an underinvested company, so the executive’s ability to find the deal and demonstrate that executive acumen is limited. Executives know management. If executive acumen is combined with a thesis and a private capital investor with vision, patience and defined executive need; the relationship then begins to become more realistic and balanced.
- Pro-active executive deal sourcing meets focused thesis driven strategy of investors.
How can it work?
White Paper at the investor on industry, situation, consolidation thesis and strategy is step one. Then it has to be married with a sourcing strategy combining the right executive, historic investment banking deal sourcing with buy side banker sourcing to accelerate the platform identification. Both sides need to have managed expectations and a plan to share the work from target identification from diligence through management meetings to close and 100-day execution. Alignment of goals, equity stake for the executive and measurements are important. Especially if the senior executives have not worked for a PE or Family Office investor owner class. Reporting systems with easy to interpret dashboards and speed in reporting is an exploration worth time and money as the hold starts to become value.
As the 2020s begin we could all look back at the post Lehman era as a time of executive dislocation meeting private deal development disintermediation when Private Equity and Family Office investing became more professional.
