Private equity involvement in the industrials sector has entered a more complicated era, albeit in a prosperous time overall, as firms compete for deals, board and executive talent, and face shifting markets and regulation.
That’s according to the Executive Monitor released by premier global talent and leadership advisory firm Boyden.
Boyden’s Executive Monitor report, titled Private Equity and the Industrial Sector, explores key trends in private equity, focusing on opportunity, hurdles, and disruption within industrial portfolio holdings in manufacturing, energy, automotive, transportation and logistics. The report is based on exclusive Boyden interviews with senior executives from PE firms and portfolio companies, as well as Boyden Partners from the US and Europe.
Board composition and executive leadership are among the top concerns of PE firms, investors and portfolio executives. Bringing in the right outside talent and non-executive directors are explored as potential solutions.
“There is a lot more pressure now to have independent boards, especially to meet due diligence criteria and when looking to exit,” says Francesca d'Arcangeli, Global Leader of Boyden’s Industrial Practice and a Managing Partner of Boyden United Kingdom. “We are seeing more independent, non-executives placed. The bigger the entity, the more likely they are to be hiring an independent board of directors.”
“Strategy and procedure are important, but if any of these organisations don’t have the right people, they’re not going to win,” says John Mapes, Partner at Aurora Capital Partners. “The older I get, the more I realise that if it’s Aurora, the New England Patriots, or one of our portfolios, it all comes down to people.”
“A firm’s exit strategy for its portfolio companies is critical when looking for leadership talent,” says Tom Zay, a Managing Partner of Boyden United States in Houston. “The CEO profile changes based on the exit strategy. If you have a short-term exit strategy, you’re looking for a different type of CEO than if you have a five- to seven-year exit strategy.”
“Exit cycles are largely extending, and because the industry is generally paying higher multiples than say five to 10 years ago, it’s taking longer to achieve the required returns,” says Conor Boden, an Advisor to global private equity firm Advent International, who served as the firm’s Head of Portfolio Development from 2007 to June 2019. “Now we’re all having to work harder than before with our management teams to optimise performance and realise the value creation potential of an investment.”