Private equity (PE) ownership imposes a unique and demanding environment on CEOs. These leaders are tasked with rapidly generating significant value within a defined timeframe, often with the ultimate goal of a future sale. This pressure necessitates a dual focus: achieving aggressive growth and profitability targets while simultaneously preparing the business for a successful exit. While financial drivers are often perceived as the primary concern, the Human Resources (HR) / People function plays a crucial, and often underestimated, role in enabling the CEO to achieve these objectives.
This article explores the multifaceted responsibilities of a CEO and the Chief People Officer (CPO) in a PE-backed company, emphasising value creation, exit readiness, and the indispensable partnership between these two roles throughout this transformative journey. Insights from experienced leaders like Paul Adams, CEO of Lloyds Clinical, and David Balls, ex CPO of Newcross Healthcare, will provide practical perspectives on this dynamic landscape.
The core objective for a CEO in a PE-owned company is to deliver substantial and measurable value. This translates into ambitious targets for revenue growth, improved profitability, and enhanced operational efficiency. However, this short-term focus on performance must be carefully balanced with the long-term imperative of preparing the business for a successful exit, typically through a sale to a strategic buyer or another financial sponsor.
value creation
Paul Adams, with his extensive experience leading businesses across healthcare, telecommunications, and dentistry under potential PE scrutiny, understands this duality intimately. His experience underscores the need to demonstrate not only strong financial performance but also clear improvements in customer service and overall business service delivery. In this context, value creation is often intrinsically linked to building a reputation for business excellence and innovation, making the business an attractive acquisition target with a compelling value proposition, showcasing a sustainable competitive advantage built on expertise and operational efficiency.
Exit Preperation
As well as value creation, the CEO must proactively prepare the business for a potential sale. This involves:
- Building a Robust Management Team: Demonstrating a capable and experienced leadership team that can continue to drive success post-acquisition.
- Developing Scalable Processes and Systems: Ensuring the business possesses the infrastructure to support future growth and seamless integration with a larger entity.
- Optimising Financial Performance and Reporting: Presenting a clear and compelling financial narrative that highlights the business’s strengths and future potential.
- Addressing Potential Deal Breakers: Identifying and mitigating any risks or liabilities that could impede a successful sale.
- Cultivating a Positive Company Culture: A motivated and engaged workforce is a significant asset and positively influences buyer perception.
In this high-pressure environment, the HR function transcends its traditional role and becomes a vital strategic partner to the CEO. HR plays a critical part in facilitating the transformation necessary to deliver value and prepare for a potential sale.
The role of HR
David Balls, ex CPO of Newcross Healthcare, brings vast experience navigating the complexities of HR across a number of different sectors, often involving significant change and transformation. His perspective highlights the crucial role of HR in aligning the workforce with the strategic objectives of the business, particularly in a PE-backed setting where rapid change is commonplace. He emphasises the need for HR to be proactive in identifying skills gaps, fostering a culture of continuous learning, and ensuring the organisation has the right talent in the right roles to effectively execute the business strategy.
HR’s key contributions throughout this journey are complex and include:
- Talent Acquisition and Retention: Identifying, attracting, and retaining the high-calibre talent required to drive growth and innovation. This involves building a strong employer brand and implementing effective recruitment and onboarding processes.
- Organisational Design and Development: Ensuring the organisational structure is fit for purpose and can effectively support strategic goals. This may involve restructuring, team building, and implementing new ways of working.
- Change Management: Leading and supporting colleaguesthrough periods of significant change, such as new strategies, processes, or technologies. Effective communication and engagement are paramount in this context.
- Skills Development and Training: Identifying skills gaps and implementing targeted development interventions to equip colleagues with the competencies needed to succeed in the evolving business environment. This includes leadership development to cultivate a strong management pipeline of potential successors.
- Performance Management: Implementing robust performance management systems that align individual and team goals with overall business objectives, driving accountability and identifying areas for improvement.
- Culture Building and Colleague Engagement: Fostering a positive and high-performing culture that attracts and retains talent, motivates colleagues , and supports the company’s strategic direction.
- Compensation and Benefits: Designing competitive compensation and benefits packages that attract and retain top talent and align with the company’s performance goals.
- Communication and Colleague Relations: Maintaining open and transparent communication with colleagues throughout the transformation and sale process, addressing concerns and fostering trust.
The success of a CEO in a PE-owned company is inextricably linked to the strength of their partnership with the CPO. Whilst the CEO sets the strategic vision, they rely on the CPO and the wider HR function to translate that vision into actionable people strategies.
Paul Adams views HR as a critical enabler of his strategic goals, particularly in ensuring the workforce is highly skilled, motivated, and aligned with the company’s commitment to its vision and operational efficiency. He recognises the significant value in HR’s ability to attract and retain top talent and foster a culture of continuous improvement and professional development.
David Balls emphasises the importance of HR being fully integrated into the strategic decision-making process. HR needs a deep understanding of the financial targets and growth aspirations of the PE owners and the CEO to develop people strategies that directly support these objectives. This includes providing data-driven insights on talent, engagement, and performance to inform critical strategic decisions.
As the company approaches a potential sale, the role of HR becomes even more critical. Potential buyers will meticulously scrutinize the company’s talent pool, organisational structure, and HR practices as part of their due diligence. A strong HR function can significantly enhance the attractiveness of the business to potential acquirers.
HR’s specific responsibilities during the sale process include:
- Preparing HR Due Diligence Materials: Compiling comprehensive information on colleagues , compensation, benefits, policies, and any potential employment-related liabilities.
- Managing Colleague Communications: Keeping colleagues informed about the sale process in a timely and transparent manner, addressing their concerns and anxieties.
- Facilitating Integration Planning: Collaborating with the acquiring company to plan for the integration of the workforce, ensuring a smooth transition and minimising disruption.
- Retaining Key Talent: Implementing strategies to retain critical colleagues who are essential for the continued success of the business post-acquisition.
Conclusion
In the demanding world of private equity, the CEO’s ability to deliver value and prepare for a successful exit is paramount. While strategic vision and financial acumen are undoubtedly essential, the role of the HR function in building a high-performing team, effectively managing change, developing critical skills, and navigating the complexities of a sale cannot be overstated.
The insights of leaders like Paul Adams and David Balls underscore the strategic imperative of a proactive and deeply aligned relationship between the CEO and the CPO.
By fostering a strong and collaborative partnership , PE-backed companies can unlock the full potential of their people, drive sustainable value creation, and ultimately achieve a successful and rewarding exit.
The journey from acquisition to sale is a transformative one, and a capable and strategic HR function serves as the indispensable engine that powers the people side of this critical transformation.