The Explosion of Interim and the De-risking of New Appointments in Private Equity

March 9th, 2021

The Explosion of Interim and the De-risking of New Appointments in Private Equity

At Drax, we have seen a significant uptake in the number of senior interim consultants being taken on by private equity firms. This demand is across all stages of the PE Lifecycle – Pre-Deal, Inflight, Transaction or Exit, with a number of key themes:

1. Tactical resource deployment e.g. the need for additional resource in the run up to an IPO or liquidity event
2. Transformation projects (carve-out, digitalisation, M&A, Internationalisation)
3. De-risking a hiring scenario at various stages of the private equity, in essence a ‘try before you buy’ model

Our research with drxDATA® has shown that 26% (900+) of PE backed businesses in the UK have made a change at the top of their Finance function (CFO, FD or equivalent) during the past 12 months. Of these businesses, 21% have hired an interim solution for the three reasons listed above. This appears to be an increasing rate of change compared to prior years, no doubt driven by shifts in the economic landscape since the onset of the Covid crisis in the UK.

Previous research published in the 2019 Leadership Capital Insights Report looked at the impact that interim leaders in PE backed businesses had on performance. It found that companies that tactically deployed agile (interim) resource grew at a rate of 14% per annum, compared to the average growth rate of 6% for all business that exited in the 2018 / 19 financial year.

Tony Martin, a seasoned Interim Chief Transformation Officer who is currently at Northumbrian Water as their Transformation Business Advisor, is one such individual. “In short, a professional interim brings with them all the necessary attributes to both hit the ground running and to critically and effectively deliver at pace; this is no bland cliché. They have vast experience. They have been there, seen it and done it.

With a single-minded focus on outcomes and results, a deeply experienced interim manager galvanises the organisation and brings a broad perspective across the business. They prioritise what is absolutely necessary and sequence the delivery of tasks in hand, into an optimised schedule of actions with crystal clear ownership and accountability across the Executive. Quite aside from also bringing clear governance and a rigorous drum beat of crisp and clear activities into the business, along the way they have the trusted ‘boots on the ground’. The interim de-risks and provides reassurance and transparency to key stakeholders whilst building effective relationships with local management through their commercially savvy yet engaging no-nonsense leadership style.

The right interim is the glue that holds it all together; they can cope with and deliver anything thrown at them.”

There are two types of interims - serial interims, and those that will also consider taking on a permanent position. The ‘try before you buy’ model works with interims, who use the opportunity to review the organisation. Should they then take on the permanent role, the end result for the organisation is a higher level of retention, as well as securing a high delivery focussed hire, who has fully integrated within the leadership team and been bought into by the private equity firm.

Olivier Fusil, who was recently Head of Transformation for a large UK Corporate bank, approached Drax to seek an interim role with the ‘try before you buy’ model in mind. Olivier had previously seen interims taken on at his previous firm, who once tried and tested, were offered a permanent role. As a result, retention increased, and knowledge and continuity was retained within the department. “I personally see this as a great way to really review what the end client is like, and for the client to really see my skills in the work environment and how I would personally fit and engage with my peers within the organisation. If I was then offered a permanent opportunity, I know exactly what I will be signing up to, as will the client. It is a great way to de-risk an appointment.”

As a result, Olivier could see the benefit and value of taking an interim role which had a strong chance of becoming permanent, and he is now keen to secure a permanent position.

Paolo Benedetto was previously the CEO for Taziker Industrials Group and significantly grew the business within a short time frame. Similarly, the key for Paolo when hiring was to try and find the right fit for his organisation. He felt this could happen in a standard permanent process but looked to hire an interim with a view they would take on the permanent role. This was a fundamental change in his hiring strategy, as he recognised that it allowed him to de-risk a critical appointment.

“I could see huge value in the de-risking of a permanent hire by taking on an interim who ideally wanted a permanent position. I was able to see first-hand what the interim was like in the actual role and environment. It also allowed me to see how they interacted with their C-Suite peers. I then had the added benefit of feedback from my peers before making the permanent appointment. In hindsight I suspect the candidate was also interviewing us. It just made common sense to me. As a biproduct, my retention stats also increased at this level.”

Are you finding a similar trend in your portfolio companies? Do you have a need for strong subject matter experts? Are you looking to de-risk your hiring strategy and increase your retention? Or perhaps you find the market is opening up again as we have an end sight to lockdowns disappearing?

Please get in touch, it would be great to hear your opinion.

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