Tightening labor market engulfs PE-backed executives

Private equity sponsors face an increasingly difficult challenge when hiring top talent for their portfolio company management teams. Here are several approaches to executive recruiting that are helping sponsors become more competitive in top-decile talent acquisition.

  • Supply and demand. According to capital market company Prequin, global fundraising totals from 2016-2020 more than doubled compared to the previous five years. The resultant and dramatic rise in the number of portfolio companies is greatly outpacing the relatively modest growth of the broader executive pool. There are significantly more C-level opportunities today than there are highly qualified candidates.
  • Increasing role expectations. With each passing year, more and more is expected from portfolio company management, which is seeing its roles increase in complexity and sponsor expectations.
  • More challenging environment for multiples on invested capital. Purchase multiples persist at all-time highs, putting more pressure on each management team’s ability to fuel growth, margin improvement and value creation.

How can sponsors attract talent? Several tactics can help sponsors better compete for top-decile talent.

Allow executives to commute

Sponsors prefer that C-suite leaders live near the portfolio company’s headquarters, but requiring relocation eliminates a majority of top-flight talent. Many sponsors land elite leaders by allowing them to commute, while others lose them by requiring relocation.

The “in the office five days a week” standard is no longer the market norm, nor is it sustainable. An in-office cadence of three to four days per week, three weeks per month, has worked well for many sponsors.

Be smart about compensation

Sponsors want top quartile talent for second quartile compensation. But top executives are commanding top-quartile salaries.

Game recognizes game

While executing a traditional hiring process, savvy sponsors must shortcut a process if and when a top decile talent is recognized. The longer an elite candidate lives in a process, the greater the risk of losing that individual to a competitive search process.

We suggest sponsors benchmark these expedited candidates against the better leaders in their portfolio of companies.

Broaden your horizons

Open the job spec aperture to include best athletes who are adjacent, rather than a direct hit, to the spec. The tighter the spec, the less likely a sponsor will find someone who can truly thrive amid the diverse and ever-increasing challenges within an LBO.

Stay close to the spec’s business sector requirements but remain open-minded about end-market experience, functional scope, etc.

Develop truly innovative talent strategies

Traditional search strategies are generally reactive and slow. It’s time to displace the old methods of hiring with far more proactive and expedient recruiting solutions. Falcon has counseled many sponsors on programmatic strategies that deliver a solid competitive advantage to their organizations.

Sponsors are facing unprecedented talent challenges and must adapt to the times — creatively and aggressively — in order to remain competitive in the contest for elite portfolio company leadership.

Rob Huxtable is a partner at FALCON