Talentspotting: The 5 types of people you meet in a Private Equity deal
Value Creation Plan Newsletter #102
Choose Private Equity. Choose a life where spreadsheets are poetry and KPIs are your daily affirmations. Choose a world where "value creation" is the holy grail, “workstreams” are the secret sauce, and "carried interest" is the pot of gold at the end of the rainbow. Choose a motley crew of misfits and too many meetings in your calendar. Choose the relentless pursuit of alpha returns. Choose your future. Choose life.
- Homage to the opening monologue in the Trainspotting movie.
Thank you
Thank you all for your great feedback and lively discussion about my last newsletter on the $3.2 trillion traffic jam in private equity. And welcome to the new subscribers to this value creation plan newsletter and community.
In the last post, we talked about what portfolio companies can do to get out of the current exit traffic jam successfully. I thought it would be important, before we move on to discuss meaty topics like how to refresh a value creation plan, to highlight a key point about the different people and personalities in private equity deals.
It’s the people, stupid
No matter how good your strategy and value creation plan is, it ultimately boils down to people (and behavioural psychology) to make things happen at the portolio company level.
If you've worked on a private equity deal, you know that from the early days of sourcing and diligence, through the intensive post-acquisition value creation phase, to the eventual exit, you will interact with a colorful cast of talented characters, each with their own unique motivations, personalities and quirks.
In this post, we'll take a tongue-in-cheek look at the 5 types of people you're most likely to meet in a PE deal, so you know what to expect and how to make the most of working with them:
The Deal Partner: The Thrill of the Deal
Deal partners are the adrenaline junkies of the PE world. They live for the rush of sourcing and closing great deals, and they're always on the lookout for the next big opportunity. They are often former investment bankers and highly competitive.
Deal partners get excited by proprietary deal flow and the chance to uncover hidden gems. They're worried about missing out on the next big thing or getting outbid by a competitor. They care most about the IRR and the success they can generate for their firm and personal reputations.
Key personality trait: impatience
Typical hobby: kitesurfing
Most frequently asked question: "Can we do this yesterday?"
The Operating Partner: The Maestro of Value Creation
Operating partners are the unsung heroes within PE firms. They're the ones who roll up their sleeves and try to get into the nitty-gritty of the business, working closely with deal partners pre-deal and with management post-deal to drive the value creation plan.
Operating partners are often former management consultants or C-suite execs and get excited by the opportunity to transform a business and unlock its full potential. They worry about the management team's ability to execute, the processes and tools that they use, and the potential for unforeseen hiccups. They dislike surprises and care about a good dashboard to track the impact of current initiatives on the EBITDA growth that needs to get delivered.
Key personality trait: analytical mindset
Typical hobby: marathon running
Most frequently asked question: "Can we get more margin improvement out of this workstream?"
The External Advisors: The Specialists
External advisors are the hired guns of the PE world: lawyers, due diligence consultants, accountants and other subject matter experts that are brought in to provide deep expertise on specific areas of the business, whether it's sales, technology or procurement. They're the ones who move the deal through key stage gates and help answer questions like, "How does this company stack up to industry benchmarks?" and "What best practices can we implement here?".
Advisors are systematic in their approach and try to be as fact-based as possible. They need to move at the pace of the deal and often rely on their armies of junior staff to provide that extra bandwidth for due diligence, deal completion and value creation. They worry about scope creep, project extensions and sustaining their reputation in the PE ecosystem. They might not worry as much about whether the deal is ultimately successful or the recommendations implementable as they will have moved on to another project.
Key personality trait: storytelling
Typical hobby: golf
Most frequently asked question: "Have you thought about doing things my way?"
The Executive Team: The Ringmasters
The executive team of the portfolio company is the linchpin of any successful PE deal. They're the ones who have to balance the competing demands of the deal team, the operating partners, the consultants, and their own employees, all while trying to hit ever-more-ambitious targets.
Executives get excited by the opportunity to take their company to the next level and achieve a successful exit. They worry about managing the intense pressures and expectations of PE ownership while still maintaining the trust and engagement of their teams.
PE-experienced execs are highly coveted for their ability to hit the ground running. They know how to speak the language of value creation and can nimbly navigate the politics of their new overlords. But even the most seasoned exec can be thrown off balance by the sheer pace and intensity of a PE-backed transformation. The key is to push back when needed, ask for and provide realistic budgets and timelines, and never lose sight of the long-term health of the business.
Key personality trait: sleep deprivation
Typical hobby: cycling
Most frequently asked question: "Who is going to break the news to the PE guys?"
The Employees: The Jugglers
Last but not least, the employees of the portfolio company are the ones who ultimately determine the success or failure of the PE investment. They have to actually implement all the strategic and operational changes dreamed up by the higher-ups, often with little say in the matter.
Employees are also the ones on the front lines, dealing with customers, production issues, and all the day-to-day challenges of the business. They might get excited by the opportunity for growth and development under new ownership… but they are not as well compensated and also have to worry about job security and the potential for increased workloads and stress. They care most about understanding the new vision for the company they have worked so long for, and feeling valued for their contributions.
Key personality trait: equal measures of excitement and anxiety
Typical hobby: the pub after work
Most frequently asked question: "Can you believe the stuff they are making us do?"
A chaotic family
So there you have it - the 5 types of people you're most likely to meet in a PE deal. Each with their own unique role to play and different personality traits.
The key is to put yourself in their shoes to understand their different perspectives on what needs to get done during a PE investment.
The fund and advisor teams will often view the deal through the lens of spreadsheets and powerpoint presentations, focusing on financial metrics and strategic objectives. In contrast, the executive team and staff will often experience the reality of day-to-day challenges and triumphs of the organisation, pouring their blood, sweat, and tears into making it successful.
Motivations will vary among individuals: some will be driven by the financial rewards, others by the satisfaction of a job well done, and many others frankly will be very indifferent. Like any family reunion, it might be chaotic, but it can also be a memorable experience.
If you can get the 5 types of people to work as a team, you might have a shot at being one of the lucky few portfolio companies who makes it through the current traffic jam and comes out the other side with a successful exit.
Do you recognise these personalities from your own experience? Who else would you add to the cast of characters?
Eager to hear your perspective,
Juan Lopez-Valcarcel
Image credits: Trainspotting, the classic 1996 movie (Channel 4 films)