Trump, Trade Wars and Ivory Towers – Drayton’s Rob Seery and Josh French discuss the kind of Private Equity talent best suited to these challenging times
RS: The first thing to say is: although, yes, the times are challenging, I’m not sure they have fundamentally changed the skillset PE investors are looking for in a new CEO or CFO.
JF: Only, perhaps, made those skills even more in demand?
RS: Yes, that’s exactly it. They want “true P&L owners.” Which is a phrase that is often used. People who understand all the elements and components which impact on profit and loss. Candidates who can say things like “I have left my fingerprints all over the fine detail of our procurement operation.” So, when, for instance, they are talking about taking cost out of an operation by analysing options around, I don’t know, packaging, they are across every detail of a decision like that.
JF: That’s because PE clients, as investors, have already gambled, already taken a risk. So, now, in terms of key appointments, they want to reduce it. Take as much risk as possible out of the equation. Even more so, in uncertain times like these.
RS: If we take the packaging example – when the investor says “I need you to cut a million pounds off the bottom line,” the new consumer sector CEO they have hired will, they expect, understand exactly how to do that because they have done it before.
JF: Typically those businesses are being sold five years down the line based on a multiple of EBITDA, net profit, so, essentially, it's the profitability of the business the key talent is expected to deliver against. The same, I find, is true on the behavioral side. Private equity usually gravitates towards people who are high-energy, really comfortable working at pace. Generally, they’re not individuals who are happy to sit in an ivory tower. They can move seamlessly between rolling up their sleeves and devouring and managing the detail and then sit at board level and talk strategy.
RS: As I said, if anything, the lack of certainty in the marketplace has not changed but has compounded the type of individual investors are looking for – detail-driven achievers. A successful CEO said to me recently that, when he was in a corporate environment, you have structure, there's process and, typically, a lot of people around who have lots of knowledge. But, when he moved across into a smaller private-equity- funded business, he quickly realised that a lot of these businesses don't have that. As a consequence, he started to adopt a philosophy that he still follows – asking persistent questions of his team until he knows they have the right answers. Until he’s absolutely certain the detail is right. Because that's what the investors want from him. When he does his weekly phone call they need to know that, as he said: “If we drill down into the detail, I really understand it.”
JF: I think the times we are in have made companies value that right person, the right skills, even more. Investors are waiting for exactly the right talent. They'd rather not have anyone than have someone they're not 100% on. These days, some investors won’t buy a business simply because they haven't got the perfect person to come in early enough. There’s a level of caution.
RS: Yes, but the key characteristics of the decision are not necessarily about caution but rather, I’d call it, determination – sheer bloody-mindedness to have every single one of their selection criteria met.
JF: That’s right. The more external risk factors there are – Trump, trade wars, Brexit, and the rest – the more investors have become focussed on eliminating the one key risk they do control. And, in the end, that’s all about the character and experience of the CEO, CFO or Chair they decide to hire.