Case Study: The 12-18 Month Replacement Cycle in Lower Middle Market Deals—and How BlackmoreConnects Helps Executives Break the Cycle

Written By: Gerald O’Dwyer IIThe PE Guru — Blackmore Partners, Inc | November 14, 2024

In the world of lower middle market (LMM) private equity, it’s an unfortunate but common reality that newly appointed executives often get replaced within the first 12-18 months. I’ve come across multiple studies and industry insights that reveal how high turnover rates among executives in PE-backed companies not only disrupt operations but also erode value. This frequent turnover cycle reflects a fundamental misalignment between PE expectations and executive readiness to meet those demands.

The Data on Executive Turnover in LMM PE Deals

Various studies and industry reports suggest that 40% to 60% of executives in PE-backed companies are replaced within the first 18 months of their appointment. In the LMM space, these numbers can be even higher. The reasons for this high turnover are often tied to several key factors:

Mismatch in Skills and Strategic Vision: Executives who excel in operational or corporate roles often struggle in the PE environment, where the emphasis is on accelerated growth, cost control, and exit strategy. In many cases, new hires find themselves ill-prepared for the rapid pace and heightened expectations of a PE-owned company.

Lack of Preparedness for PE-Specific Metrics: PE firms demand specific performance metrics, such as EBITDA growth, cash flow improvement, and return on invested capital (ROIC). Executives who don’t fully understand these metrics or who lack experience in driving them can quickly fall out of favor.

Inability to Navigate Cultural and Strategic Shifts: Many executives come from larger corporations where they were used to more resources and less direct accountability. In an LMM company, they often struggle to adapt to the leaner, more hands-on culture and the intense focus on ROI and value creation demanded by PE backers.

Economic Headwinds and Market Pressures: With inflation, supply chain issues, and economic uncertainty affecting all sectors, LMM executives are under even more pressure to deliver results. Those who cannot adapt quickly to these challenges often face early replacement.

How BlackmoreConnects Conferences Address These Challenges

At Blackmore Partners, we understand that many executives aspire to thrive in PE roles but lack the necessary preparation and network. BlackmoreConnects conferences are designed specifically to address these gaps, offering both education and networking opportunities that help executives succeed in the private equity world. Here’s how:

1. Bridging the Knowledge Gap through Specialized Education

Our conferences include targeted workshops and panels that focus on the specific skills needed to excel in a PE-backed environment. Sessions cover crucial areas such as:

Financial Metrics and Value Creation: We educate executives on PE-relevant metrics, such as EBITDA improvement strategies, ROIC, and efficient working capital management.
Exit-Oriented Leadership: Panels with seasoned PE professionals reveal what PE firms expect from leaders preparing for exits, providing executives with insights into how to build value and plan for a strategic sale.
Operational Agility: PE-backed companies often require leaders who can quickly pivot in response to market conditions. Our workshops focus on agility and resilience, teaching executives to adapt their strategies amid economic volatility.

2. Building PE-Specific Networking Connections

Another critical component of our conferences is the networking opportunities they offer. Executives often enter PE-backed roles without the network that could support them through challenges or open doors to new partnerships. BlackmoreConnects provides:

Access to PE Firm Representatives: Our events bring together executives and PE decision-makers, allowing attendees to forge valuable connections that may lead to future board roles, advisory positions, or C-level opportunities.
Peer Networking for Real-World Insight: Meeting and interacting with other executives in similar roles helps participants learn from others’ experiences, gaining insights into common challenges and solutions in the PE landscape.
Mentorship Opportunities: Our conferences offer mentorship from seasoned PE veterans who understand the complexities of running an LMM company within a PE framework.

3. Hands-On Workshops and Case Studies

BlackmoreConnects conferences include workshops that simulate real-world PE scenarios. These hands-on sessions allow executives to gain practical experience in:

Navigating Due Diligence and Onboarding: We simulate the due diligence process, helping executives understand what PE firms look for during initial evaluations and what it takes to hit the ground running.
Developing and Executing a 100-Day Plan: Executives are guided in creating a robust 100-day plan, a crucial aspect of meeting PE firms’ expectations early on and establishing credibility.

4. Improving Cultural Fit and Adaptability

Understanding the unique culture of a PE-backed LMM company is critical for success. Many executives come from corporate backgrounds and are unprepared for the intense focus on profitability and efficiency. BlackmoreConnects conferences emphasize the importance of cultural adaptability and provide tools to:

Enhance Accountability and Ownership: We show executives how to thrive in a lean, performance-driven environment, where every decision impacts the bottom line.
Adopt an Investor’s Mindset: Executives learn to view decisions from an investor’s perspective, emphasizing capital efficiency and maximizing value.

Case Study: How BlackmoreConnects Helped an Executive Succeed in a PE-Backed Role

One executive who attended a BlackmoreConnects conference shared that he had previously struggled in PE-backed roles due to a lack of understanding of PE metrics and investor expectations. After attending our conference, he applied new insights into ROIC, cash flow management, and operational efficiency to his role. Within six months, he had turned his company’s EBITDA around and secured the trust of his PE backers, becoming a top performer in the portfolio.

Conclusion: The Role of BlackmoreConnects in Reducing Turnover

The high turnover rates in LMM PE deals stem largely from a lack of preparedness among executives. The fast-paced, metric-driven environment of a PE-backed company can be a harsh adjustment for those without the necessary training and network. BlackmoreConnects conferences serve as a critical platform for executives, arming them with the tools, network, and understanding needed to succeed and avoid early replacement.

For executives considering or currently in a PE role, attending these conferences could be the difference between success and a short tenure. In today’s market, where PE firms are more selective and demanding, taking proactive steps to bridge the knowledge and network gap is essential. BlackmoreConnects offers the educational and networking advantages that help executives thrive in PE—ensuring they are the right leaders for the challenging but rewarding world of lower middle market private equity.