Private equity and portfolio-company managements misaligned, leading to costly CEO turnover, according to AlixPartners survey

20 March 2018

34% of portfolio company CEO turnover seen as unplanned, leading to longer hold times and reduced returns for private equity firms

NEW YORK (March 20, 2018) – Misalignment of priorities is causing significant friction between private equity firms and the CEOs and other senior managers of their portfolio companies (“portcos”), according to a new survey of leaders at both PE firms and portcos by the global consulting firm AlixPartners. CEO turnover at portcos is unplanned 34% of the time, according to averaged responses from the two groups in the survey, the AlixPartners-Vardis Third Annual Private Equity Survey, conducted in conjunction with Vardis, the global private equity executive search firm. This misalignment is costing PE firms valuable time by lengthening the period of their ownership of companies, as well as lowering their returns, according to survey results.

The poll also found that among private-equity respondents, 39% said replacing a portco CEO in the period one year following deal close and one year preceding deal exit causes the most disruption at the portco, but that same group reported that 58% of CEO replacements are made in that very time frame.

Looking at how private equity firms assess the quality of portco management, 40% of PE respondents said conflict management was the hardest trait of a CEO to assess. However, only 5% of portco CEOs and other senior managers said that this trait was important for high performance in their position. Among the portco respondents, leadership skills (cited by 67%) and strategic thinking (46%) were rated as the two most important capabilities for high performance on the job. After “conflict management skills,” leadership skills and strategic thinking were indicated as the hardest competencies to assess.

Despite the reported high rates of unplanned CEO turnover, only 39% of private equity respondents said they’ve sharpened their approach to CEO succession to accommodate longer investment hold periods, while 38% indicated they’ve made no changes to their approach. Among portco respondents, 63% said longer investment holds by their owners haven’t prompted them to alter their approach to succession planning. Despite the obvious need for greater planning in this area, 64% of both private equity and CEO respondents in the survey said they don’t have suitable successors identified for the CEO role in their company, nor for the CFO and COO roles.

Ted Bililies, PhD, global leader of the Organization & Transformative Leadership practice at AlixPartners and a managing director at the firm, said, “This year’s survey shows that private equity needs to take further action to avoid costly C-suite turnover at their portcos. They need to undertake more robust CEO assessment during due diligence, move succession planning to the top of their priority list, and set clear expectations upfront with CEOs regarding goals, performance metrics, and communications.”

About the Survey

The AlixPartners-Vardis Third Annual Private Equity Survey, conducted in conjunction with Vardis, the global private equity executive search firm, was administered Oct. 18 - Dec. 6, 2017. There were 116 total respondents, split between 53 private equity executives, 68% majority of them managing directors or operating partners, and 63 portfolio company executives, 86% of them CEOs or presidents. The survey focused on CEO turnover, executive succession at portfolio companies and communication between private equity firms and portfolio company senior management.

About AlixPartners  

In today’s fast-paced global market, timing is everything. You want to protect, grow or transform your business. To meet these challenges, we offer clients small teams of highly qualified experts with profound sector and operational insight. Our clients include corporate boards and management, law firms, investment banks, investors and others who appreciate the candor, dedication, and transformative expertise of our teams. We will ensure insight drives action at that exact moment that is critical for success. When it really matters