The emergence of the “Rising Star” Corp Dev candidate in PE Portfolios

by TJ Deal

In our last Corporate Development Quarterly Newsletter, we examined the shifting paradigm of reporting structure for corporate development leaders in private equity portfolio companies. Despite this upward movement in strategic focus and reporting structure, the average tenure of our head of corporate development placements has dropped over the last three years.

And while corporate development is far from the only function seeing this trend, we believe there are a few trends specific to the space that are driving this paradox:

More lower middle-market firms hiring M&A leaders for their portfolio companies

One of the biggest and most notable trends of the last year is the massive uptick in lower middle-market PE firms hiring heads of M&A for their portfolio companies, often for the first time in firm history. And with these businesses being smaller in nature, their budget doesn’t always permit them to hire a “proven commodity” (someone who has already led a successful M&A transformation for a PE-backed company) and pay them the level of compensation they would demand (which is often more in line, if not above, what the CEO of the business is earning).

An improvement in M&A “infrastructure”

Several years ago, the amount of PE firms / CEOs / companies that had led successful M&A transformations is a fraction of what it is now. With that comes an era of more sponsors that have been a part of a similar strategy, and more CEOs / leadership teams that know what it’s like to be in an acquisitive company. In other words, the average “M&A infrastructure” in a portfolio company is far stronger than it was 5-8 years ago. Because of that, there is sometimes less of a need for the candidate who has “been there, done that,” and companies are more willing to take a risk on a “rising star” (someone who has led deals, but has not yet led a corporate development function).

(Inevitably) Supply and demand in a tight market

Despite the previous two trends, the “proven commodity” has, and will always have, a massive market. To have been in the seat, and “won” in the seat, transforming a PE-backed business through M&A, is invaluable. That said, while the number of “proven commodities” continues to grow, there are currently only so many to go around. Factor, then, in the number of successful M&A candidates who stay on with their company / go on to do other things (CFO, GM, etc.) after a successful exit, and it’s inevitable that many organizations looking to hire this kind of talent will have to prioritize talent over tenure.