As a specialist Executive Search provider to Private Equity-backed and Privately-owned businesses in the UK, we wanted to share some recent insights that may support and inform some of the key senior talent decisions you may make going into Q2 and beyond.
Market Update:
In 2023, the UK’s lower-mid private equity market experienced a 10% decrease in investment activity amid challenging macroeconomic conditions, with 675 transactions completed compared to 735 in the previous year. Despite that being a relatively “small” decrease, the sentiment within the Executive candidate community was to stay put and see how trading performance played out, as the likelihood of an exit is often the real determining factor of a potential role change for an Executive already in a PE-backed business.
Despite the overall decrease in deal volumes, the Business Services sector remained the most active, accounting for 44% of all deals, followed by the Tech, Media, and Telecom (TMT) sector with 18%. However, TMT deals saw a significant 24% year-on-year decline, hitting a five-year low. In contrast, the Financial Services sector experienced growth, with a 13.6% increase in investment activity, amounting to 86 deals. (Thanks to KPMG for these stats.)
The outlook for 2024 has been cautiously optimistic, with expectations for economic stability driven by falling inflation and a more stable interest rate environment, although financing costs are expected to remain high. Exec teams on the whole have done what they can to manage this turbulence, assess costs and investment, but now look to invest to reignite the growth strategy.
From our conversations with investors, that private equity market is adapting to these conditions, supported by available capital, normalised valuations, and a supportive debt market, albeit with increased scrutiny and costs. These factors, along with the potential for increased stability, are anticipated to foster a more positive environment for dealmaking in Q2 of 2024, and has improved Executive-level candidate sentiment for discussing new opportunities – both for themselves, but also for their businesses as the plan to strengthen the team.
From similar conversations with PE-backed CEOs, there is a slight sense of fatigue, with investment cycles having been lengthened due to sale process delays, as well as perhaps having to do more with less. Executive Teams are fully aware of their equity value and if that is underwater then the likelihood of them listening to more equity-favourable opportunities increases. Therefore, we are seeing additional incentives, albeit a short-term fix, are marginally supporting retention. We also hear that the reliance on the CFO has significantly increased, with the need for more regular and detailed financial planning and insights, to get closer to the business, as well keeping investors informed with high quality data.
Top Trends:
Our team has identified several key trends shaping the way in which Executive Search has been influenced by recent transaction levels and the economy in general:
1. Strong CFO capability boosts advisor and buyer confidence. There is an increased demand for experienced “exit-proven” CFOs who can easily and capably lead a sale or M&A process, which may have been put on ice in 2022/23, but is now very much back on the agenda.
2. Alongside to the CFO, there is an increased demand for financially literate COOs, CTOs and HRDs, who can demonstrate commercial capability beyond their own domain/functional expertise – to ensure the board room conversation comes back to EBITDA and value creation.
3. A shortening of hiring time frames. Some interview processes are being completed in 3-4 weeks rather than 6-8 weeks – all whilst ensuring the process is equally robust and inclusive.
4. Shortlisted candidates are conducted more due diligence than ever. The risk of moving roles in uncertain times is naturally higher, so candidates want to know exactly how much greener the grass really is, at an earlier stage of the process, and gauge if the proposition is credible.
5. Increased amounts of referencing by clients. Reducing the risk-to-hire is more important than ever, to ensure the new Exec has the Right Mindset needed to create value, not just the technical capability.
Pay & Reward Insights:
- We are still seeing salary increases despite cost of living corrections already being given in 2023 – as well as “traditional” pay increases when moving between businesses.
- Equity participation continues to be a major consideration for Execs and SLT members, but transparency on likely future valuation is still key, especially for those who have not experienced private equity incentives before.
- Bonus buyouts are coming back into play, as the certainty of bonuses being paid seems to be increasing.
- LTIPs continue to appeal to Director and Senior Manager level candidates
- 5 recent shortlists resulted in the following basic salary averages;
Chief Executive Officer – £100m revenue business services company; £188,000
Chief Financial Officer – £50m revenue manufacturing business; £172,000
Chief Financial Officer – £25m revenue online data business; £147,000
Head of Digital – £100m revenue FMCG business; £125,000
Head of Product Development – £20m revenue SaaS business; £121,000
Our Recently Completed Projects:
· Managing Director – Testing & Inspection
· Chief Growth Officer – Education Services
· Chief Financial Officer – Engineering
· Chief Financial Officer – Manufacturing
· Chief Financial Officer – Publishing
· Head of M&A – B2B Services
· Chief Technology Officer – Data Insights
· VP of Customer Success – SaaS
If you have any questions about the above or would like to discuss how we can support your business’s Executive & Senior talent needs, talent pipelining & insights, pay & reward benchmarking, M&A insights, or perhaps talk through your own personal career goals, then please do get in touch.
James Boot – Managing Director
james.boot@marblehillpartners.com
03333055119
07881376703