Challenging Times for Private Equity

We have all seen fashions come and go and unfortunately the Private Equity market is going through some challenging times that may make this a less attractive space for our candidates to consider a career move to.

This is driven by two main factors:

1. the cost of money and availability of funds - This makes some of the more appealing aspects of PE deals less so as instead of re-structuring an organisation's balance sheet, and in effect re-financing the business in order to extract profit prior to a trade sale or re-floating organisations are having to find the improvements and returns through operational performance improvements which requires cultural and organisational change to make it happen. This is much much more challenging and takes a lot longer than traditional PE timescales to make it happen.
2. the loss of incentives for PE firms in terms of tax treatment of their holdings - The government through what is largely being described as a poorly thought out change to tax incentives is reducing the benefits PE firms get from making investments. This policy has impacted small businesses as much as PE firms with one major difference. PE firms are instruments and machines for financial manipulation and as history has taught us when the opportunities dry up the instruments and machines move onto the next big thing leaving all behind it, whereas small businesses do not have that choice.

So if you are a top flight candidate with a stellar career history, why would you run the risk of going into a market that is in decline and exhibiting all the signs of the smart money getting out of it, at least for now. 

The primary reasons appear to be because of the seduction of huge bonuses, and people feel they want to say "I was there" during the gold rush, "it was an experience essential to my future career plans" and "it gave me the space to leverage my skills and talent without being incumbered by traditional limitations on thinking".

As any student of history will tell you one only needs to see the impact of short sighted thinking like this leading to riding waves of fashion with no sense of style. It always ends up with more losers than winners and it would be the arrogant to assume all will succeed.

Our recommendation is go into it with your eyes wide open. If you think you can manage the fall-out of it going wrong in terms of the personal and working elements of your life then this could be the time to take the risk. We would recommend you think carefully about the following:

• The types of deals a PE firm worked on - were they all financial gymnastics or was there evidence of driving real performance improvement within the core business
• The reputation and experience of the team in place today and their plans for the future
• The number of successful PE projects completed and currently operating
• The commentary from the firms they have acquired on the critical factors relating to brand reputation, revenue, attrition rates and customer acquisition and retention

The opportunity to make a difference in firms like these is vast but if you are driving a cultural, organisational change you can be talking about a long haul.

Author
David Alexander

BYT

0207 313 2565
da@byt.com

BYT specialises in tracking and recruiting commercial high flyers. www.byt.com