Breaking the Exit Gridlock: Insights from the 2024 Private Equity Talent Report
Authored By Eric Walczykowski
There has been one constant in the private equity world in the last several years: the value of top-notch executive talent remains crystal clear.
We’re excited this week to release the new edition of our Private Equity Talent Report, offering an update on the state of the market for executive talent in software and SaaS companies with private equity sponsors.
2024 Talent Market Update
Compensation Remains Elevated
Turbulent times often make the best leaders stand out and the recent challenges in private equity have been a case in point.
As we journeyed through the uncertainties of 2023, we saw senior executives’ On Target Earnings (OTE) crossing the half a million-dollar mark and exits that slowed dramatically.
To us, these shifts underscore the high regard the market has for leaders who are adept at navigating the complexities of an ever-changing business landscape.
The increase in executive compensation reflects a significant influx of capital into the private equity sector in 2021, which led to fierce competition for experienced talent.
By year-end 2023, OTE levels showcased a substantial 19% increase from the figures recorded in 2020, signaling a tight market that seemed impervious to the deceleration in deal activities. What we saw with our clients was a fierce demand for leaders known for value creation, and a cautious approach from our candidates when considering major career moves in uncertain times.
Equity Value Projections Soften
Beyond cash, the conversation around equity payouts, expressed as a multiple of OTE at the point of signing, saw a downtrend across all roles through 2023.
We feel this shift is due to a broader sector valuation reset and a growing preference among executives for cash over equity.
We are witnessing the reduced attractiveness of equity packages in a market where private software and SaaS companies’ valuations are coming back down to earth from the high levels of recent years.
Compensation and Company Scale
An intriguing aspect to this trend is how company size impacts compensation structures. It comes as no surprise to us that earlier-stage companies tend to offer lower cash compensation but higher equity or options.
As companies grow, cash compensation increases with the assurance of financial stability. Meanwhile, executives at earlier-stage companies with larger equity packages have a shot at greater upside when they achieve an exit for the sponsor, making up for the lower cash compensation.
Exit Gridlock
Many of Bespoke’s clients are facing an unprecedented exit gridlock, challenging the traditional model of exiting investments within a typical 5- to 7-year period.
This situation leads to several issues:
It puts a strain on liquidity, delaying the reinvestment into new ventures;
It postpones returns to limited partners, which can erode trust and satisfaction; and
It complicates achieving the high returns that justify the risks and efforts involved in private equity investments.
Addressing this kind of gridlock requires the strategic insight of seasoned C-suite leaders. By leveraging their experience, our placed executives can initiate strategies to enhance a company’s attractiveness for a successful exit. Perhaps this is through aggressive M&A activities in the face of market corrections. Or maybe it is preparing for a potential IPO rebound with capital-efficient growth. Or the strategy may entail making the company appealing for buyouts by other private equity sponsors.
These strategies not only aim to break through the exit gridlock but also position portfolio companies favorably in a tight market.
Get Your Report:
Get your complimentary copy of the Private Equity Talent Report Market Update here: www.bespokepartners.com/private-equity-talent-report/
As private equity firms navigate the complexities of today’s market, having executive leaders with the right experience is an indispensable lever to unlocking value and steering private equity firms towards successful outcomes despite the current challenges.
Compensation is a major key in attracting and retaining such talent within the industry. These trends discussed in our newest edition of the 2024 Talent Market Update reflect the ongoing dialogue between market conditions, company growth stages, and the undeniable value of seasoned leadership.
Bespoke Partners Named in Top 10 of the “Top 49 Retained Executive Search” 2-Years Running by C-Suite CV Secure.
Author:
Eric Walczykowski
Chief Executive Officer
Eric is passionate about building high-performing teams that value doing their best, working together, overcoming adversity and learning.
As a proven growth executive, Eric has served as CEO, President, Board Member, Investor and Advisor for technology companies that achieved over $4.5B in successful exits.
Eric brings to Bespoke Partners significant professional services experience from Deloitte and Andersen, as well as the high-growth client executive perspective for private equity-backed technology companies.
Eric earned an MBA from the Kellogg School of Management at Northwestern University and a BS in Business from Fresno State University.
Outside of work, Eric enjoys spending time with family, coaching baseball, travel, attending live events and sipping good wine.
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