by Matthew Ayers and David Portney
Stiles Associates
It’s no secret Q1 was an uncharacteristically slow time in private equity, as Pitchbook estimated a 14.4 percent drop in exits compare d to Q4 2022 – accounting for a combined value of $55.9 billion (the lowest total since Q2 2020). Is this a warning of what’s to come or just a blip on the radar? What does this mean for retaining, recruiting or potentially letting go of executives in PE firms and their portfolio companies? These are all questions being asked in the PE community, and executive recruiters like Stiles Associates often have the first insights of what to expect due to our close proximity to hiring trends.
The good news is there’s still a lot of dry powder; firms are just being selective for a variety of reasons. Uncertainty in the market correlating with the threat of a far-reaching recession made them more cautious of over-paying for companies that can’t quickly be turned into profitable acquisitions. That translated into a slower hiring quarter in the space, but now that we’ve turned the page to the second quarter things have started to pick back up, especially in the middle-market and lower middle-market sectors.
Banks are still being careful about lending money, which is impacting large firms more significantly while clearing a path for those with PE backing of less than $1 billion. With middle-market PE encompassing two-thirds of total deal value in the United States, this bodes well when predicting what could happen to the industry as a whole. However, this doesn’t mean large caps should be counted out. They are only going to be so patient, so they’ll continue to hunt for the big prize while re-evaluating their calculations on the level of risk they’re comfortable taking. After all, right now there’s a high visibility reward for making a splash acquisition they might not get if they wait.
Accompanying the increased activity is a continued emphasis on retaining and recruiting the top executives in the space. Compensation for transformational leaders remains at an all-time high, so firms that de-emphasize the talent impact will likely get burned in both the short and long terms. Now is the time to ensure high-performing executives remain well compensated, and the ones that don’t will entertain options from recruiters like us.
We’re seeing the highest demand in supply chain and operations roles from the Director level through the C-suite. On the financial planning and analysis (FP&A) front, there’s a strong emphasis right now on finding the right CFOs to plan; develop; implement; and monitor organizations’ fiscal health and performance.
However, companies across private equity are trying to not be overly conservative, so they’ve been placing greater emphasis on bringing in Interim Operations talent to hedge against the uncertainty. We’ve been spending more time partnering with our clients on Interim searches, and we expect this hot period to continue as companies wait for the financial markets to come to light. As Bain & Company recently reported, companies that are “prudently aggressive” are the ones that reap the most rewards during recessions.
If your company is in need of bringing in industry-leading transformation leaders, submit our brief form online to kick off a discussion on your hiring needs; or, if you’re interested in being considered for any of our open career opportunities, then please send us your resume to get in our database.
Please contact Stiles Associates Partner Matthew Ayers to learn more about our Private Equity recruiting capabilities.