As the private equity industry grapples with the lasting setbacks of limited deal flow and misalignment on purchase price multiples in 2023, Lancor’s differentiated value-add – leveraging top executive talent to sharpen an investment thesis – will be a key driver of success.
Between 2010 and 2016, the average PE firm outperformed the S&P 500 by 22%. While this may have been partially due to financial engineering, the real underlying differentiator is bringing in the right executive talent to accelerate growth. Based on research conducted by Paul Gompers, Steven Kaplan, and Vladimir Mukharlyamov in their working paper, The Market for CEOs: Evidence from Private Equity, 72% of new CEOs at publicly traded companies are internal hires promoted from a lower level. In contrast, approximately 75% of new CEOs at PE-backed assets (and appointed by the PE firm) are not employed by the company before taking on the leadership role. By hiring outside the asset, PE firms can bring in leadership that aligns with their value creation plan and the company’s culture, allowing for new ideas to fuel growth.
At Lancor, we believe this alignment is crucial, not only for the CEO hire, but for the entire C-suite, board, and Operating Partner group. As discussed in part three of this writing series, there is a serious need to increase deal completion and return money to LP’s pockets so new funds can be raised. This forces every role into the spotlight to understand where the key levers of value creation reside – and the sooner in the investment thesis, the better.
Outside of the typical reactive talent replacement, we work with PE firms through Lancor’s Advisory Business (“LAB”) to generate executive-led deal angles and bring operational insight to the forefront of the deal process. Our bespoke advisory service aims to connect our clients with the right executives at any and every stage of the deal process, allowing for a true partnering of financial engineering and operational insight. Having a thought partner during the diligence phase not only creates an added level of assurance throughout the M&A process but often introduces our clients to executives who join the asset as board members or in a full-time capacity.
To provide an additional path to closing a deal, we work with select executives to develop their own thesis in an industry where they have first-hand experience – identifying assets from our database and capturing their uncodified understanding of the industry – to generate unique and operationally-backed deal angles. This continues to be a crucial tool for our clients, especially during times of uncertainty within the deal market.
Despite the challenges of COVID and its aftermath, investors and LPs alike are eager to get back to the goals of improving and growing assets. At Lancor, we partner with firms and executives throughout the deal lifecycle to generate differentiated alpha and allow assets to succeed regardless of market conditions.
