Trends for Private Equity in 2024

January 8, 2024 – As we kick off the new year, DHR Global asked its practice group leaders to reflect on the trends they have seen in their industry in 2023 and what may lie ahead in 2024. The firm’s private equity practice, led by Keith Giarman, managing partner, global private equity, discusses C-Suite talent, relocation and work-from-home challenges, growth-focused leadership, and what business leaders should consider to stay ahead in 2024.

Looking at the demand for C-suite talent, the roles of chief commercial officer and chief revenue officer have become much more prevalent over the past one to two years as companies see the opportunity to have revenue-focused roles in marketing, sales, and digital under one leader who can set clear and consistent objectives across all these functions, according to the DHR report. Additionally, the firm has found that the need for qualified operational and analytical CFOs continues unabated, and as a result,  compensation for top CFO candidates has increased accordingly.

In a recent study from Harvard Law School, the total compensation for CEOs and CFOs increased; however, the salary increase for CFOs was generally more significant. A typical salary increase range for CFOs was 3.6 percent to 9.1 percent compared to the CEO salary range of 3.4 percent to 7.4 percent.

Relocation Challenges

On a macro level and senior level, the DHR report explains that candidates are focused on securing employment with more latitude to be remote, at least partially. “As a result, PE firms have a more challenging time attracting top candidates who are not local nor open to relocation,” the report said. “On the other hand, candidates seem to be missing some good opportunities by being less flexible than in the past.”

A Challenger study reported that 39 percent of companies were offering fully remote employment in 2023, which has decreased from 44 percent of organizations that offered this benefit in the fall of 2022. DHR explains that accepting a more remote workplace seems more prevalent in certain industries like tech versus manufacturing.

Related: The Market for Senior Roles Heating Up at Private Equity Firms

“For the most part, because our candidates tend to be leaders with equity in the game, they understand they need to be in the business and will do whatever is needed to create culture, transformation, and results,” the DHR report said. “So, if the ideal new hire is open to traveling (and will be where and when they need to be) but not fully relocated, they are still often offered the position.”

Decrease in Deals

Private equity dealmaking is down across the board, with specific segments as tech hit hardest, but companies wanting to IPO are sometimes considering options for PE ownership, according to the DHR report.

Opportunities and Challenges in Private Equity Recruiting
Private equity firms are saying that talent is the most important factor in driving growth. While financial engineering, inorganic growth, and market expansion remain important tools in the private equity toolbox, talent continues to emerge as key to growing companies and achieving the investment thesis, according to a report from Bespoke Partners. Yet unlike strategic assets, intellectual property, or other resources that fuel growth, talent can be notoriously difficult to optimize. In fact, the biggest challenge for the PE sector is getting talent right, according to Nat Schiffer, managing partner at The Christopher Group. “PE firms often compete with other financial services firms, technology companies, start-ups, and other industries for the limited pool of qualified talent with the necessary skill-sets and experience for the PE industry,” he said. “The intense competition for top talent can make it challenging to attract and retain qualified candidates who may have multiple options.”

“PE firms require candidates with a specific blend of financial acumen, operational experience, and industry knowledge to drive value creation in their portfolio companies,” he said. “Finding candidates with the right mix of skills and expertise, particularly in specialized industries or niche markets, can be challenging, as these candidates may be in high demand and have limited availability.”

With IPO and M&A having a difficult 2023, a report from PE Hub found that PE-backed sales were down 27 percent by value and 17 percent by number of deals compared to 2022. Trends look more favorable in 2024, but DHR notes that there is plenty of uncertainty with high debt costs and other factors impacting the outlook for PE dealmaking.

Growth-Focused Leadership

When companies make changes in PE-funded companies, it is very often CFOs or COOs who are responsible for the operational fabric of the business so they can be sure they are creating an efficient platform for growth given an improving economy, according to the DHR report. The firm says that this is especially true in companies with an investment thesis involving M&A (a vertical industry “rollup”), where rapid and effective integration of acquired entities is required.

Driving Consumer Acquisition

Many companies within DHR’s PE portfolio clients are even more focused on cutting edge at profitable consumer acquisition, lead generation, and ultimately, the idea of having a team and leadership who understand and value the analytics of consumer lifetime value (CLTV); that is, customer longevity and purchase frequency over time. “The difference is sophistication in how it all connects (CeX, digital, brand, etc.) to revenue/ margin generation and the segmentation of customers/consumers via CLTV,” the DHR report said. “It is dramatic and will be a differentiator of success for PE-backed consumer businesses, as those at the forefront are making huge strides.”

PE Talent Accessibility

Candidates who joined PE-owned companies from 2018 to 2020, lured by the opportunity for wealth creation, are often now more open to leaving given economic conditions and extended investment hold periods. With economic conditions and higher interest rates, many PE firms extend their holding periods, leaving impatient talent open to other opportunities. On the other hand, candidates are sitting tight in companies where the gradual improvement in economic conditions looks like it can result in a meaningful exit in the next 24 or so months.

Predictions for 2024

What Recession? Last quarter saw a 4.9 percent annual GDP growth rate, the strongest since late 2021. “The economy’s remarkable underlying strength has prevented the much-predicted recession of 2023 from occurring — but there is no assurance that good fortune will continue in 2024,” the DHR report said. “Plenty of factors at work here – economic and political – could dictate less growth than anticipated.”

Year of the Union

The U.S. labor movement is having a moment amid some recent big union contract wins, surges in strikes, historic union election wins at aggressively anti-union corporations and a presidential administration that touts itself as the most pro-union in history, the DHR report explains. “As unionization becomes more prevalent in the future, companies will need leadership teams that can maintain partnerships and communicate effectively with their workforce,” the report says. “In the past, unions pressured organizations and governments to protect the people before the company.” Still, Gartner predicts that generative AI will motivate knowledge workers’ unionization and increase by 1,000 percent.

Virtual Workforce is Here to Stay, Yet Conditionally

Some industries, like tech, are much more open to a virtual or largely virtual workforce. DHR notes that other segments with plant or lab infrastructure are much less available for remote work. Specific geographies tend to be open to remote. For example, DHR points to conservative geographies like the Midwest and the South favor the in-person model, compared to liberal geographies like Northern California, which seem more open to remote work. Companies that have mandated in-person work have found it more challenging to attract great talent.

The U.S. has one of the highest rates of remote work globally. Startups are born in remote settings, and it is cost-effective for businesses. SHRM conducted a study that shows that 16.3 percent of executives are implementing a hybrid option, 11.2 percent fully remote, and 72.6 percent entirely in-person by 2028.

“The private equity industry is an ever-evolving and challenging industry, and these factors will affect the way PE-backed organizations build their workforces and leadership teams,” the DHR report said. “By staying up to date on the latest trends and developments, private equity leaders will be prepared to address these challenges and opportunities for continued success in 2024 and beyond.”

Related: How Talent is Driving Private Equity Success

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Executive Editor; Lily Fauver, Senior Editor – Hunt Scanlon Media