Management changes are increasingly likely during an investment period, drxDATA research finds
Almost every private equity backed business makes some kind of change to their leadership team during the investment period, research by drxDATA has found.
Our analysis of the 252 exits by private equity backed businesses in 2018/2019 found that 98% of those companies oversaw some variety of executive change during the hold period.
It also found that four of the top five executive roles were more likely to be changed than in the previous year, with only the sales role less likely to be changed. CTO roles were 7% more likely to have been changed compared to the previous year, up to 29% from 22% in 2017/2018.
As the graph above shows, by far the most likely executive change to take place is the replacement of the CFO, with 69% of those businesses which achieved an exit having brought in a new CFO at some point in the investment cycle.
This figure is even higher for those businesses achieving the most successful exits, with 78% of businesses in the Upper Quartile changing their CFO during the investment period.
Our analysis found that there was also considerable movement for CEOs, with 41% of the 252 businesses which achieved an exit replacing their CEO at some point in the cycle. The best performing teams, however, change their CEO slightly less than average, with 37% of the businesses in the Upper Quartile making a change during the investment period.
The drxDATA research also found that PE-backed businesses are making these changes to their management teams increasingly earlier in the investment cycle, with CFOs being replaced on average two months earlier at 19 months in 2018/2019 compared to 2017/2018. The best performing upper quartile businesses also replaced their CFOs two months earlier, at 8 months into the investment cycle.
Changes to CEOs took place on average at 21 months into the investment cycle, with businesses in the most successful upper quartile making the change considerably earlier at 10 months.
Drax contact: Samuel Robberts
Head of drxDATA
Tel: 0203 949 9565