Role of management in Private Equity

The rise of private equity buyouts has opened a new career path for ambitious senior executives.  For those who are up to the challenge, private equity-owned businesses offer significant advantages versus traditional ownership structures. But the private equity environment is not for everyone, and managers are advised to consider their abilities and preferences carefully before becoming involved.

In general, private equity firms seek exceptionally talented managers with a relevant industrial background, previous responsibility for an independent P&L, strategic decision-making capabilities, experience dealing with banks and leverage and ideally, a successful track record within a private equity-backed business. 

Senior executives in private equity buyouts are truly at the centre of decision-making, with full accountability for the successes and failures of the business. Private equity investors make supportive shareholders, but they are also focused entirely on results, and poor performance is not tolerated. Managers enjoy short lines of communication with their shareholders, with whom they share a common purpose: value creation. Decisions can be made quickly, and both governance and financial reporting are simpler than in public companies.

Private equity-owned companies are often subject to rapid change. They offer a dynamic working environment in which entrepreneurial ability is highly valued. The private equity professionals appointed to work with the company will be intelligent, capable people. Although they may not have an industrial background, they will be well equipped to challenge as well as support the management team’s point of view. 

Some buyout companies maintain higher than average debt to equity ratios and managers need to be comfortable working with leverage to get results. In general, private equity-owned companies are more pressured than their traditional counterparts, with monthly board meetings and in-depth management reporting. 

The alignment of the shareholders’ and senior manager’s interests is at the core of the private equity business model. Successful managers appreciate the common purpose this brings to the business as well as the potential for significant financial rewards. Once senior executives have established a track record within private equity, they will be approached regularly to consider new and exciting opportunities.