December 30, 2019 – Today, the PE sector is the chief growth driver for executive search firms. PE firms are rapidly expanding their portfolio companies and along that pathway they need top talent more than ever before. In short, private equity firms are hungry for top level C-suite talent as their portfolio companies go through an explosive gritty phase. At the same time, the PE sector as an investment source is also becoming a growing wellspring of capital for search firms to expand their businesses. And that capital is driving M&A deals among search firms.
As Hunt Scanlon Media looked back on 2019, we found these forces playing a significant part in the top stories across the board. Picking the 10 focused on private equity out of such a vast array was no small task, but we ultimately made our selections.
For starters, private equity-backed acquisitions fueled the search industry’s continuing trend toward consolidation. Diversified Search, funded by an infusion of dollars from ShoreView Industries, acquired Koya Leadership Partners. ZRG Partners continued to implement its growth and expansion strategy, purchasing Toft Group, among other firms this year, with PE funding. And Riviera Partners secured a minority investment of $25 million led by private equity firms Kayne Anderson Capital Advisors and ROCA Partners.
But this was not a trend restricted to the U.S. Among our other top stories, London-based search firms Dartmouth Partners, which specializes in corporate finance, investment banking, private equity and wealth management, merged with Pure Search, backed by Literacy Capital plc. And ThinCats, a leading U.K. private lender, provided upwards of $3.5 million in debt financing to help U.K. based TritonExec execute its expansion plans.
Not to be outdone, behemoth Carlyle Group went a step further, this year becoming a majority investor in HireVue. This story was a prime example of one of the biggest PE firms acknowledging the great investment fundamentals that underpin much of the recruiting sector by investing in the sector itself.
Hunt Scanlon also told readers about the growing focus by PE firms and their portfolios to install world-class talent leaders at the top of their organizations whose primary function is to oversee an increasingly complex human capital environment. Heads of talent, as one big story showed, have become among the fastest-growing specialist roles for private equity firms. As if to prove the point, Greenwich Harbor Partners this fall placed the chief human capital officer of differentiated private equity investor Capital Partners. And our piece about finding the right leaders for PE firms emphasized that a thorough and continual analysis of human capital is essential whenever a PE firm takes on a new company.
Lastly, we gave our readers insight into how private equity, ever pushing for better results, is driving recruitment firms to up their game to find the talent that can deliver on every PE firm’s investment strategy. In the end, that’s a win-win for all concerned.
Here are our choices of the top PE recruiting stories of 2019!
M&A activity, with the support of private equity firms, continued unabated in the executive search industry in 2019. Diversified Search, backed by investment dollars from private equity firm ShoreView Industries, acquired Koya Leadership Partners, one of the nation’s top search firms in non-profit and higher education. The merger creates one of the largest executive search firms in the U.S. marketplace, with combined projected annual revenue in excess of $80 million. Koya retains its own name and branding and now operates within the portfolio of Diversified Search companies. “The key part of the deal was that ShoreView emphasized, vociferously, that they were not operators and had no interest in being operators,” said Judith M. von Seldeneck, founder and chair of Diversified. They were not just investing in a search firm, they were investing in the people who make the search firm great. They understood our business model and simply want to be part of giving us the bandwidth to build on it more aggressively, to do what we do best on a much larger platform.”
ZRG Partners continued its rapid expansion in 2019 to super boutique status with the acquisition of Toft Group, a smaller rival focused on the life sciences and biotech sectors. Toft Group now operates as a ZRG company, focused on supporting client needs for senior life science professionals. The acquisition adds depth to the existing global life sciences practice at ZRG. The transaction adds about $10 million in annual revenues to ZRG and bolster the firm’s direct presence in the global life science sector in which it maintains a strong market presence in the top tier pharma space. With this acquisition, ZRG will report revenues anticipated to exceed $65 million in 2019 and will have over 200 global team members supporting clients across a number of industry and functional disciplines. Robin Toft, founder and chair of the Toft Group, continues in her role with the firm.
Riviera Partners, a recruitment provider specializing in C-level engineering, product and design leader placements, closed a minority investment of $25 million led by private equity firms Kayne Anderson Capital Advisors and ROCA Partners. The financing will be used to fund Riviera Partners’ continued geographic expansion, strategic acquisitions, enhancements to its “Sutro” proprietary recruiting platform and the addition of staff to meet the increased demand for its services. “We are excited to partner with the Riviera team given their collaborative, results-oriented culture and commitment to providing best-in-class service to their clients,” said Ravi Sarin of ROCA partners. “With this growth investment, Riviera can continue to enhance its technology platform, which enables its recruiters to deliver superior service and outcomes for its clients.”
U.S. private equity firms are becoming more sophisticated and generating record demand for operating specialists with the skills and experience to actively manage their portfolio companies, according to Heidrick & Struggles’ 2019 North American Private Equity Operating Professional Compensation Survey. As measured by deal activity, the U.S. private equity market closed a record 4,828 deals worth a combined $713 billion. The data also shows there has been a sharp decline in fundraising, signifying that firms are likely more focused on investing the capital raised in previous years. As a result, more private equity firms are now tapping operating professionals to help portfolio companies reach their full operating potential. “It’s an interesting time for private equity and the most competitive and active market we have seen in the past two decades,” said Jonathan Goldstein, regional managing partner of the search firm’s private equity practice in the Americas.
Greenwich Harbor Partners placed HR leader Bruce Ennis as chief human capital officer of Capital Partners, a differentiated private equity investor focused on building and growing private companies with business owners. As the chief human capital officer, Mr. Ennis focuses on advising and assisting portfolio company management on organizational development, recruiting, training and employing human capital best practices. Previously, Mr. Ennis was VP of HR at Bigelow Tea. Capital Partners is a private investment firm founded in 1982. Its principals have invested in more than 100 platform and add-on acquisitions. The firm’s focus primarily on manufacturers, value-added distributors and business service companies. Greenwich Harbor Partners’ principals have worked in industry as general managers and investors and have direct professional experience with the types of issues that face their clients. The firm’s client roster includes IBM Cloud Services, Media General, Marlin Equity Partners, DIRECTV, SpinMedia, and Keurig Green Mountain, among others.
Dartmouth Partners, a recruitment business in London specializing in corporate finance, investment banking, private equity and wealth management, forged a partnership with Pure Search, backed by Literacy Capital plc. Terms of the deal were not disclosed. Pure, a search firm focused on finding talent in the tax, legal, risk & compliance space, has been led by Chris Nelson and Charles Ferguson for the past 20 years. It has grown to have offices in London, New York, Berlin, Hong Kong and Singapore. Its shareholders were said to have been looking at how best to maximize the potential of the business. The acquisition allows Dartmouth Partners to continue its global expansion and rapid growth. The deal also allows Pure Search to accelerate its investment in its business. For both firms there will be an increased ability to cross-sell into a combined premium client base.
ThinCats, a leading U.K. private lender dedicated to funding growing and ambitious small to medium sized businesses, stepped up in 2019 with more than $3.5 million in debt financing to help with expansion plans at TritonExec, a search firm experiencing rapid growth in the U.K. and an expanding business base in the U.S. TritonExec is using the capital to accelerate growth in its people and technology at its U.K. and U.S. operations. It is understood that ThinCats has not taken a stake in the business. The recruitment firm, which has built a name around recruiting senior leadership for global companies undergoing digital transformation, is said to be looking at M&A activity following eight years of climbing revenues and EBITDA. Rivals in London and across the U.S. are in its crosshairs. “Having spoken to multiple lenders in the market we have been very impressed with ThinCats’ flexibility and understanding of how our business operates,” said Adam Stolerman, a TritonExec partner. “The legal and logistical side of conducting the deal was extremely efficient and collaborative.”
Investors are pouring money into recruiting solutions businesses, especially those with an AI component. South Jordan, UT-based HireVue, which develops and provides AI-driven assessment and video interviewing solutions, announced that global investment firm Carlyle Group signed an agreement to invest in HireVue as its majority investor. Existing shareholders, including TCV, Granite Ventures and Sequoia, together with HireVue management, all remained minority investors. Equity capital for the investment will come from Carlyle Partners VII, an $18.5 billion fund. The Carlyle team leading the transaction focuses on investments in global technology, media and telecommunications (TMT) companies. TMT is a core area of focus for Carlyle, representing more than $30 billion of invested equity since inception. Goldman Sachs acted as exclusive financial advisor to HireVue. “HireVue is the recognized video interviewing and talent assessments leader,” said Patrick McCarter, managing director and co-head of TMT at the Carlyle Group.
Some people like to compare a private equity investment to a marriage. Many steps are necessary in order to build a strong foundation and to be aligned for the future. PE investors and leaders strongly depend on one another to achieve returns and value within an agreed period of time. If the arrangement proves unsuccessful, either party might find themselves breaking bonds in pursuit of greater rewards. “When a private equity firm invests in or acquires a company, it needs to have a deep understanding of the company and its structure,” said Susanne Sahli, a partner at Stanton Chase. “The firm needs to know the customer landscape, the financial details, the industry and upcoming trends and challenges.”
To thrive in today’s executive search market, recruiting firms must take “extreme ownership” of client needs, said Rick DeRose and Kevin O’Neill, managing partners of search firm Acertitude, in a report by Invenias. As internal talent teams have grown more sophisticated and capable, the recruiters agreed, the expectations placed on external partners to perform and deliver an outstanding search experience have become exponentially higher. Messrs. DeRose and O’Neill co-founded their firm to drive strategic change in the search industry, which they felt had lost its focus on clients. Like the private equity firms and corporate businesses they serve, the search consultants are focused on delivering better results and better experiences. Although they take advantage of the power of digital and the possibilities offered by AI, the pair remain people oriented and committed to the value that recruiters bring in building human connections. Mr. O’Neill said he believes that a key change in the market in recent years revolves around the increasingly sophisticated buying patterns of the clientele.
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media