Operators, Choose Your PE Firm Partner

In our May 5th, 2023, Virtual Event, “Food-For-Thought,” we discussed how to proactively determine which PE Group may be the best fit for you. The Operators who participated in the conversation agreed that there are essentially four steps to the process. Ideally, remaining true to your priorities and preferences will increase the likelihood of your success. Don’t simply accept the first role that lands in your lap!

1. Start with Yourself — What are your needs, interests, wants, wishes — and what would you not want to be involved in?

2. Secondary Research Screen — Review publicly available information.

3. Primary Research Screen — Ask those who currently or formerly have worked in portfolio companies of the PEG for their impressions, feedback, and perspectives on the cultural dynamics.

4. Your Interview with the PEG —
Strive, primarily, to identify their attitudes and beliefs with regard to management success and failures.

Start with Yourself

Prioritize the types of roles, industries, sizes of companies, situations (e.g., would you be comfortable working in a turnaround environment, or in multinational acquisitions, or in highly complex structures).

Think about what you value in an Operator role. Is it a quick win or a
longer term process improvement? Do you crave positive feedback from the Board, or do you measure your success in other ways? How much communication, and with what cadence, do you prefer to operate? How much input do you need to have in hiring decisions of your peers on the management team? Would you be able to work with the Founder, in a role in which he/she is a member of your team? Is your objective to move up to larger and larger deals, or do you prefer to stay within a specific EBITDA band? Have you become accustomed to a certain level or type of support, in prior roles. What kinds of support would you expect to be in place?

Take a look at the portfolio companies described on their websites. Seeing familiar names, segments, types of customers, industry dynamics or even processes employed in the business can be good indications that you may be a fit (or more appropriately, that this PE firm and its portfolio companies may be a good fit for you). Look for familiarity, proximity to your skills, experiences and
knowledge base.

Primary Research Screen

Ideally, you should seek opportunities to interview current and former operating executives with experience serving under the current deal team and relevant board members. Below is a sample list of the types of questions you might consider asking in such an interview.

• Level, cadence of communication and reporting — Hands-on vs. hands-off?
• Financial oversight and controls – to what degree?
• From a governance perspective, how much autonomy did you have to make your own decisions? At what level?
• Support? Human capital, playbooks and processes, board, introductions, etc.
• PEG attitude toward “management”
• What was it like to work with this PEG?
you started looking at it – above or below expectations? Why?
• How have your previous funds performed?
• IRR at the fund level?
• Typical MOIC at fund level?
• What quartile, typically?
• Opportunities for recruited management to invest? Opportunities for founders/incumbent management to roll over equity?
• Is there incentive equity for management in various exit scenarios?
• Average tenure of your portfolio company senior executives?
• Describe how you tend to work with portfolio companies.
• What would you say is a typical rhythm of interactions with management?
• What is your governance philosophy and why?
• How common is it to make changes in senior management and discuss the reasons for these changes.
• Share some war stories about executives who simply did not pan out.
• Can you provide some CEO references whom I could speak with?
• Describe the culture of your firm and the portfolio.

Secondary Research Screen

As obvious as it sounds, do your homework in terms of developing a list of target PE firms that are a fit in terms of size, industry, situation, and some of the softer preferences described in the paragraph above.

• Describe some successes you had with this fund.
• Did you personally have a good outcome?
• What would you have done differently if you lived your experience with this PEG over again?
• Would you work with them again?

Your Interview with the PEG

By the time you reach this step, you should already know that you sincerely want to work with this group, or have only minimal reservations. Otherwise, you would likely not proceed to this step in the process.
For the preparation for your interview, you may wish to read Adam Coffey’s terrific book, The Private Equity Playbook, if you have not done so already. We borrowed heavily from one of the chapters in his book in compiling this list.

• Walk me through your investment thesis on this platform company?
• Discuss your investment model for the company I would help run, and let’s see how my rollover investment would perform if we hit your assumptions.
• How would you describe the company’s performance since

Conclusion

In summary, the objectives here are to increase your likelihood of success in your job search, satisfaction in the role, and frankly, increase the odds that your tenure with the sponsor is a successful one. In other words, do not simply accept the first private equity opportunity that lands in your lap. Best wishes in pursuing your next liquidity event!

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