Hiring a CEO for a PE-Owned Company: Why PE Firms Need to Build Their Candidate Funnel Today
Written By: Gerald O’Dwyer IIThe PE Guru — Blackmore Partners, Inc | December 11th, 2024
Introduction: The Pressure of Finding the Right CEO Quickly
When a private equity (PE) firm needs a CEO for one of its portfolio companies, speed is often of the essence. Whether due to operational challenges, growth opportunities, or exit timing, the firm’s success hinges on finding the right leader. Yet, while moving fast is critical, moving too fast can lead to costly mistakes—executive turnover in PE is notoriously high, especially in the lower middle market (LMM).
PE firms aren’t recruiters; they’re operational and financial strategists. But the decision to hire a CEO is one of the most consequential for value creation and eventual exit. This is why a deep, pre-established candidate funnel that aligns with the unique demands of PE is essential.
In this article, we’ll outline how PE firms can build and manage their executive hiring model, the importance of screening candidates who speak the language of PE, and how industry dynamics, governance, and change management principles factor into hiring decisions. We’ll also share 10 case studies demonstrating tailored screening approaches across different scenarios, emphasizing why starting now ensures you land the right CEO who can deliver a 3x–10x exit.
The Unique Challenges of Hiring a CEO in PE
1. The Language of PE: Value Creation and the PE Life Cycle
A CEO for a PE-owned company must understand the PE life cycle—acquisition, growth, and exit—and how to create value within it. Candidates must navigate:
- Value Drivers: EBITDA growth, operational efficiencies, strategic acquisitions.
- Life Cycle Stages: Stabilizing a company post-acquisition, scaling operations, or preparing for exit.
- Fast Decision-Making: Balancing speed with strategic thinking to drive results under tight timelines.
While some candidates will already speak this language, many others may not articulate it directly. Instead, PE firms must look for “markers” or “tells” in candidates’ experiences that signal their ability to thrive in a PE environment, such as:
- A track record of measurable financial impact.
- Experience navigating growth or turnaround scenarios.
- The ability to manage trade-offs between competing priorities.
2. The Funnel Problem: Why PE Firms Must Act Now
Relying solely on your existing network can severely limit your options. Building a robust funnel of pre-vetted candidates who understand PE dynamics ensures you’re not scrambling when the need arises. The high executive turnover rates in PE demand this proactive approach.
BlackmoreConnects, with 25 years of experience as Exec 1st investors, offers tools and frameworks to help PE firms:
- Identify candidates who align with your investment thesis.
- Use tailored screening models to evaluate fit early.
- Mitigate the risks of a bad hire by focusing on cultural and strategic alignment.
Building the CEO Model: Screen for Skills and Fit
To hire effectively, PE firms need to screen for CEOs who meet the company’s immediate needs while having the vision and capability to lead through the PE life cycle. This requires:
- Tailored Screening Models: Adjust criteria based on industry dynamics, cash flow sensitivities, or market pressures.
- Change Management Principles: Communicate your investment model, governance style, and decision-making principles early to attract candidates who align with your approach.
10 Case Studies: Tailored Screening Based on Industry Dynamics
Case Study 1: Manufacturing Turnaround
- Challenge: Post-acquisition stabilization of a manufacturing company with operational inefficiencies.
- Screening Focus: Operational expertise, cost-cutting experience, and cultural change management.
Case Study 2: SaaS Growth Company
- Challenge: Scaling a high-growth SaaS company to expand market share.
- Screening Focus: Proven revenue growth strategies, ability to manage high-velocity sales teams, and technical understanding of SaaS metrics (LTV, CAC).
Case Study 3: Retail Roll-Up Strategy
- Challenge: Leading a retail consolidation strategy across fragmented markets.
- Screening Focus: M&A integration skills, experience managing decentralized operations, and customer-centric strategies.
Case Study 4: Healthcare Provider in Cash Flow Crisis
- Challenge: Improving EBITDA amid reimbursement pressure and regulatory challenges.
- Screening Focus: Financial discipline, knowledge of healthcare reimbursement models, and turnaround leadership.
Case Study 5: Capital-Intensive Business
- Challenge: A PE-backed company impacted by supply chain delays and capital constraints.
- Screening Focus: Ability to manage working capital, negotiate supplier terms, and prioritize investments.
Case Study 6: Consumer Goods with Inflationary Pressures
- Challenge: Navigating rising input costs and price-sensitive customers.
- Screening Focus: Pricing strategy expertise, cost-cutting without sacrificing quality, and margin improvement skills.
Case Study 7: Technology Company Preparing for Exit
- Challenge: Optimizing operations and financials to maximize valuation.
- Screening Focus: Experience in exit preparation, including reporting rigor and buyer presentations.
Case Study 8: Logistics Firm Post-Carve-Out
- Challenge: Integrating carved-out operations while maintaining service levels.
- Screening Focus: Cross-functional leadership, integration planning, and customer retention.
Case Study 9: Energy Company in Regulatory Transition
- Challenge: Managing through regulatory changes impacting revenue models.
- Screening Focus: Understanding of regulatory frameworks, lobbying experience, and adaptability.
Case Study 10: Aerospace Supplier Scaling for Defense Contracts
- Challenge: Meeting stringent compliance requirements while scaling production.
- Screening Focus: Knowledge of defense contracting, operational efficiency, and compliance leadership.
Change Management Principles for Screening Success
PE firms can further refine their hiring process by integrating change management principles. This means:
- Telegraphing Your Investment Model: Share your firm’s vision and priorities early to attract candidates who align with your approach.
- Defining Governance Expectations: Clearly outline decision-making processes and reporting structures.
- Building Alignment Around Metrics: Highlight the key drivers of success for the company, ensuring candidates understand what’s expected.
Contact BlackmoreConnects for Proven Tools and Templates
Hiring the right CEO is about more than just filling a role—it’s about ensuring value creation across the PE life cycle and driving a 3x–10x exit. BlackmoreConnects has spent 25 years as Exec 1st investors, refining the tools and frameworks PE firms need to identify, screen, and select the right leaders quickly and effectively.
If you’re ready to build your CEO hiring model, contact [email protected]. From detailed templates to decision-making frameworks, BlackmoreConnects provides everything you need to streamline the process and ensure success.
Conclusion: Start Building Your Funnel Today
The best time to start building your candidate funnel was yesterday. The second-best time is today. Waiting until a need arises limits your options, increases risks, and leaves value on the table. By starting early, using tailored screening models, and applying change management principles, you ensure you find a CEO who meets the company’s needs today and leads it through the full PE life cycle to a successful exit.
BlackmoreConnects is here to help you get it right—fast, effectively, and with measurable results.