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What makes a great PE portfolio company CEO?

 



​Executive summary

PORTFOLIO COMPANY CEOs

We have analyzed 75 buyouts to determine the key attributes of the most successful portfolio company CEOs,
based on realized multiple of equity invested.

We uncovered three important questions for sponsors to consider:

  1. What is the typical background of successful portfolio company CEOs?
  2. When are successful portfolio company CEOs appointed in the company life cycle?
  3. How do successful portfolio company CEOs lead?

IN BRIEF:

 

1. What is the typical background of successful portfolio company CEOs?

 

KEY FINDINGS 

  • In the top 25 successful buyouts, excluding founders, 63% were internal appointments despite the widely held belief that an externally appointed CEO leads to better returns.

  • Despite the risk of appointing a CEO without prior private equity experience, of the top 25 buyouts, only one CEO had prior leadership experience in a portfolio company.

  • Industry experience is key: Almost all top CEOs had longstanding industry experience. Only two CEOs had banking or consulting experience.

  • Where the CEOs had not already held a general management position, the most successful came from a strong sales or operational background, leading to high growth and returns. Rationalizing costs is no longer a differentiator.

  • Within their industry, almost all CEOs have demonstrable leadership experience.

Source: PitchBook, Russell Reynolds Associates’ analysis.

2. When are successful portfolio company CEOs appointed in the company life cycle?

 

KEY FINDINGS 

  • No single “best time” when appointing a CEO: Both longstanding and new CEOs can produce high growth.

  • Underperforming investments were significantly more likely to change leadership midway through the hold period with few internal appointments (30%) vs. those in the top 25, where mid-cycle appointments were an even split.

  • Even given the potential risks of changing leadership just prior to exit, 13% of the top 25 companies did indeed change CEOs within one year of exit, emphasizing the positive outcome of making active and bold choices at the right stage of the company’s life cycle. It is worth noting that none of the CEO changes made in the year preceding exit were in companies that went public.

Source: PitchBook, Russell Reynolds Associates’ analysis.

3. How do successful portfolio company CEOs lead?

  • Successful portfolio CEOs tend to be more “humble”, approaching others in an even manner, empowering their peers and assuming others are reliable.

  • While they are fierce competitors, they are quietly self-confident and do not trumpet their achievements.

  • They excel in rapidly changing business situations, speeding up their work style as needed and juggling
    competing priorities.

 

 

Methodology

BACKGROUND AND TIMING FINDINGS

Our analysis looks at 75 CEOs of portfolio companies across all sectors, owned by private equity firms that were acquired and exited between 2008 and 2015.

Our criteria for selection included portfolio companies with equity investments of more than $100 million and exits of more than $300 million.

The analysis included portfolio companies owned by funds of varying sizes.

  • Average investment period circa five years

  • Total return ranging from 0.1x to 17x1

  • Average return for top 25 exits: 4.8x

  • Average return for bottom 25 exits: 0.98x

  • Top 25 exits labeled as “successful” for the purpose of this study

LEADERSHIP AND COMPETENCIES FINDINGS

The Russell Reynolds Associates executive assessment database contains more than 5,000 leadership profiles, allowing us to make statistically driven observations about the characteristics possessed by leaders in a particular field.

We compared portfolio company CEOs who remained with the portfolio company for three years post-investment with a broader database of 350 CEOs.

We examined 60 psychometric scales from well-validated leadership assessments to understand on which scales the private equity CEOs showed statistical differences.

1Multiple approximated based on a total value to paid-in (TVPI). Source: PitchBook, Russell Reynolds Associates’ analysis.

    

AUTHORS

JEFF WARREN leads the firm’s Global Alternatives Practice. He advises clients within private equity and alternatives, working across the asset owner, private equity investment firm and portfolio company levels. He is based in Los Angeles.

GEORGIA RANKIN leads and coordinates the firm’s Private Equity Practice in Europe. Her clients include leading international mid-cap and large-cap buyout firms. She is based in London.

ERIC GIRMA is the firm’s Global Knowledge Leader for Financial Services. He is based in London.

CONSTANCE COURTENAY is a Knowledge Associate in the firm’s Financial Services Sector. She is based in London.

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了解我们在的专长

金融服务


我们搜寻的领导者能够接纳新商业模式、提振员工士气,并满足股东、监管者和其他利益相关者不断提高的要求。
了解更多

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What makes a great PE portfolio company CEO?