When the credit crunch all but shut down the leveraged buyout bonanza this summer, executive recruiters grew nervous. In recent years they had stumbled on a gold mine: supplying private equity firms with a steady stream of investment partners and LBO-worthy managers to run the firms' newly acquired companies. A slowdown in dealmaking seemed sure to prompt a big slump in private equity recruiting, too.
But search firms say business is still humming as buyout shops continue ordering up top talent and high-profile managers keep taking the private equity plunge. Since the market turmoil began, for example, former Dell (DELL) CEO Kevin Rollins joined a bulging roster of chief executives being assembled at private equity shop TPG to assist with turnarounds; Michael Capellas, the onetime Compaq and MCI chief executive, agreed to lead giant payment processor First Data for buyer Kohlberg Kravis Roberts; and former Home Depot (HD) CEO Robert L. Nardelli and star Toyota executive James E. Press took over at Cerberus Capital Management-owned Chrysler.
Some of the demand, of course, comes from deals struck before the buyout party quieted down, since the recruiting process typically continues long after deals close. Search firms are also finding work filling gaps at the smaller companies being acquired as the tighter credit market chokes off mega-buyout deals.
But recruiters say LBO players are also focusing more on improving operations at companies they own. "Some [firms] acknowledge privately they got a little sloppy [staying] on top of management," says Alan D. Hilliker, who runs the U.S. private capital practice at search firm Egon Zehnder International. Recruiters report stepped-up interest in management appraisal services—assessing executives and suggesting who should stay. And some say they're being asked to speed up introductions to prospective operating partners who can advise on multiple makeovers. "There have been requests to crank it up," says Nick Young, who leads the North American private equity practice at search firm Spencer Stuart.
As always, buyout firms say they seek managers with a rare and potent blend of qualities: extensive operating experience, strong financial chops, entrepreneurial zeal, and a proven record with turnarounds. Recruiters add to the list the ability to thrive under intense scrutiny from the toughest taskmasters imaginable and a record of producing quick results. Buyout firms, says Kelvin Thompson, who heads the private equity group at Heidrick & Struggles International, are much more "ruthless" in what they want. "There's always been a saying in recruiting that every recruit is a compromise. With private equity, I'm not so sure."
Finding such superstars has forced recruiters to upend their typical search procedures. Some seek references up front rather than later in the process so as not to suggest a chief executive who has burned an LBO mogul in the past. Many headhunters also introduce potential executives to buyout firms long before there's a job to fill or a deal has closed, says Clarke Murphy, who heads search firm Russell Reynolds Associates' private equity practice. And firms work much faster: Searches for CEOs of private equity-backed companies are often at least half as short as hunts for their public-company brethren. "We don't have six months to figure it out," says Jim Williams, a TPG partner. "We often only have a few weeks."
Now some recruiters are drawing up strategies to stay ahead of the shifting buyout market. Spencer Stuart is developing a management appraisal service tailored to private equity. And in mid-September, Russell Reynolds held a strategy session in Madrid to counsel some 75 recruiters on how to meet the changing needs of LBO clients. They anticipate the credit crunch will heighten interest in overseas investment and global talent. Says Murphy: "The pace of private equity buying may slow down. But demand for investment in human capital is just as strong."
By Roger O. Crockett and Jena McGregor