Introducing the latest in Lancor's new series:
Building Your Management Team
As the evolution of Private Equity continues, often the most under-utilized arrow in the PE quiver is that of the Independent Board Director. Historically, PE Boards were populated by the deal professionals that helped to source, exercise diligence and ultimately execute on transactions. It is certainly logical that the stewards of the capital used to buy a company should be the ones directing the value creation plan from the Boardroom. However, most of these PE Partners and members of the General Partner (GP) or PE firm, have very deep industry and financial engineering knowledge but can lack the same level of deep operating and P&L experience resident in a company’s C-Suite. As a result, many of the top-decile PE firms are now working with these operating executives earlier in the sourcing, diligence and execution phases of a transaction’s life-cycle and as Independent Board members during their ownership period.
Over the past 20+ years, the PE industry has become more institutionalized as smart investors and talented operators have realized they can often have more levers of value-creation to pull outside the scrutiny of the quarter to quarter focus of a public company. As more PE firms were created, and the existing ones grew their pools of capital, the purchase price multiples have increased with this basic supply / demand principal. It has become harder and harder to find cheap or even reasonably cheap companies to acquire. Therefore, many of the Business School tactics of financial engineering have become table stakes, and new angles are required to drive differentiated alpha.
As a result, many PE deal professionals have turned to experienced operators to help them to develop and execute on their value creation plan. This has also opened the door for talented operators to keep their current job and join a PE Board when the ultimate product or industry is similar enough to benefit from lessons learned, but different enough to avoid obvious conflicts of interest.
The historic path for an executive to join a Board has been reserved to those with a friend on another Board and getting a call once the executive made the decision that they no longer wanted to be in the C-Suite as a full-time operator. The need to develop operational insights earlier in a deal’s lifecycle and drive operational improvements once an asset has been acquired has also opened the door to a wider pool of candidates. This new pool of candidates, which includes women, those of color and a wide variety of other diverse candidates, in turn removes the inevitable blind spots of populating Boards with those of similar backgrounds and experiences. The obvious result is greater profitability which is the stated goal for all the constituents in the PE ecosystem.
The bottom line – There has never been a better time for strong operators to begin the process of developing a personally and professionally rewarding Board career in Private Equity!
Scott is a Partner at Lancor and has over 20 years of deal generation, M&A, financial services and executive recruiting experience. He leads Lancor's New York City office. Through Lancor's Advisory practice, Scott and his team assist private equity funds with originating and appraising potential transactions, sourcing industry experts for pre-acquisition due diligence, and finding backable senior management teams. Scott has worked within the banking and private equity ecosystem as a banker and by serving C-suite and board level multinational clients within the private equity and family office sectors.