One of the stumbling blocks to dealmaking in private equity in recent times is that boards and c-level executives are wary of leveraged buyouts, according to recent research. To give some more insight into that sentiment, the pros and the cons, we offer a list about working with PE firms that was published by a leading US-based executive search firm, DHR. It is a headhunter that has a VC and PE practice that runs an annual Private Equity conference. (Download most recent DHR conference report here.).
The Pros of PE investment
• Decision-making is accelerated and more effective.
• Decision-making is more efficient based on alignment amongst the parties. Everyone is clear that they are part of an “investment” scenario where the goal is return on investment.
• Accountability is a priority and that mentality at the top typically pervades the organization. Accountability drives fact-based decision-making. Rigor of process is emphasized.
• PE investors have experience that leads to effective brainstorming on key initiatives. PE resources can be effectively harnessed to make better business decisions.
• Alignment is not perfect. PE firms can apply shorter-term thinking that might not make sense if the CEO were running an entity with a longer horizon for results to occur.
• The PE firm is very focused on ROI, but the CEO also has to deal with other stakeholders. PE firms do not always prioritize these other constituencies as much as they should (or the CEO needs to).
• More focused on financial performance, the PE firm’s definition of success is metric-oriented when more balanced and qualitative measurements, like organizational health, are also important.
• The CEO needs to “manage up” when PE staff members are deployed to set boundaries, establish clear timelines tied to objectives and make sure everyone wins.