3 Key Takeaways from the 2024 PEI Operating Partners Forum

Our team recently attended the 2024 PEI Operating Partners Forum. Focused on connecting value creation leaders, the event covered topics ranging from measuring team impact to team structure, organizational design, and the evolving landscape of technology advancements. Among the topics discussed, three key trends emerged: setting expectations for C-level changes, succession planning, and alignment between the operating partner and deal partner.

Deal Partner & Operating Partner Alignment

In private equity firms, the relationship between the deal partner, who drives the initial acquisition, and the operating partner, who focuses on organizational value creation plans, is critical.

“Operating partners fill a variety of roles, serving as industry or functional experts in the due diligence process, assessing and coaching the c-suite during a holding period, and preparing the management team for exit. Given their extensive involvement with the portfolio companies, it can be difficult to quantify their direct impact on the performance of the business,” shared Drew Pressman, Managing Partner at JM Search.

By establishing metrics that effectively communicate how operational improvements are influencing investment milestones, operating partners can ensure a successful partnership with the deal team. “Ultimately, to maximize the exit, deal partners and operating partners must understand and agree upon the exit strategy and commit to the value creation narrative,” said Tom Figueroa, Managing Partner at JM Search.

Setting Expectations for C-Level Changes During a Holding Period

Many operating partners shared that they often encounter executive teams that are not the right fit to drive the company to its next phase of growth. Deciding to change C-suite during the holding period can be a challenge, as it significantly impacts the organizational culture and team, but bringing in new C-level talent can be a crucial step toward growth. To make the transition easier, early in the process, set transparent expectations for all stakeholders – company leadership, deal partners, and founders, if applicable – and communicate the rationale for the change, including the value creation opportunity and alignment to value creation goals.

Chuck Egoville, Managing Partner at JM Search shared that “as holding periods continue to elongate, now averaging nearly 6 years, and CEO tenure continues to decline, now averaging less than 5 years, leadership changes will not be a rare occurrence but an almost certain challenge that operating partners must navigate.”

Succession Planning in Founder-Led Businesses

For many middle market investors, founder-led businesses are an important opportunity area. “Founder-led businesses are unique in that the founder is so central to the organization’s culture and brand. As the keeper of the ‘secret sauce’ that has made the organization successful so far, transitioning from a founder to a new CEO or leadership team can pose a differentiated challenge for operating partners looking to evolve the business. Getting the right talent in place – whether it is a leader or leaders – is critical. This will ensure that nothing about what made the business great is lost and that the organization is on the fast track to achieving its value creation proposition,” stated MaryJeanne Scott, Managing Partner at JM Search.

Many operating partners shared that they often collaborate with founders to ensure a seamless handover, working together to identify candidates, both internally and externally, develop transition plans, and set timelines. Operating partners stressed that there is rarely a one-size-fits-all approach when working with founder-led businesses, but maintaining a focus on the company culture, brand, and organizational stability are universally critical.

Coming away from the conference, the potential for operating partners is clear. Alignment between deal and operating partners, setting clear expectations for C-level changes, and thoughtful succession planning in founder-led businesses are paramount for driving growth and maximizing value throughout the holding period and beyond.