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Private Equity Update: April 2023

calendarMay 26, 2023
Private Equity Update: April 2023

By Scott Dunklee, Managing Partner, The Lancer Group

With no shortage of economic drama in the news cycle, I re-watched an encouraging interview on Bloomberg that David Rubenstein did with Bruce Flatt, CEO of Brookfield Asset Management. Brookfield originally emerged from a Canadian industrial conglomerate and today is one of the largest alternative investment funds with over $700 million AUM (it also recently took a majority stake in Oaktree).

Flatt pointed out that while we know the power of compound investment returns, the best advice he was ever given was that:

“The compounding of returns is an incredible miracle of business finance and human existence. Everything you learn is additive every day, and if you keep at it and don’t quit, it’s an incredible miracle. And it’s not just interest. It was always said about compound interest returns. But compound business returns, compound human returns – they’re all very additive – because you learn every day. And if you keep at it, it’s very, very helpful.”

From unprecedented macro economics, to valuation changes, to management team mis-hires. These are painful lessons, but studying and learning from them makes us better.

Cleaning out our Company Closets

In the tech sector in particular, the events of 2022-23 have given us some really good opportunities to learn every day (and compound those ‘human returns’). What’s clear is the “operational rigor” that took a back seat to growth during the bull market is now back in the spotlight. Cue Operating Partners and active Chairman roles (who have been CEOs themselves) with an economic cycle under their belts.

Years ago when Apple CEO Tim Cook was still EVP of Operations reporting to Steve Jobs (and many doubted Apple’s survival), as a young headhunter I asked Tim how he was taking out cost and making Apple efficient again. He commented that operating costs tend to stack up with new initiatives and are then forgotten (like junk we put in our closets and ignore). At Apple, Tim said, “I just kept finding closets and cleaning them out…”

Fast forward to 2023. Commenting on a recent software company take-private (paying a significant acquisition premium), a new board member Lancer Group placed said they had already identified efficiencies and cost take-outs that were there all the time (but ignored when the focus was growth only).

Banking crisis or not, more Tech Take-Privates

10 years of largely growth focus have left mature tech companies needing operational realignment, with a lot of “closets” full of costs. Meanwhile, Prequin, the data firm, estimates that in the US alone buyout fund assets under management surpassed $2tn for the first time ever. Even if there’s an extended bank lending void on LBO debt, we expect to see more private credit-focused funds stepping in and tech take-privates to continue.

After all, there will always be companies who can use some operational rigor and closet cleaning.

On that note, while Lancer core business is headhunting, our “pre-deal” service has been shortlisted two years in a row now for the “Best Solutions for Clients” category by the Managing Partners’ Forum (whose awards are sponsored by both the Financial Times & Harvard Business Review).

Please feel free to contact me or anyone at The Lancer Group, whether you have an executive search in mind, need a C-Suite “river guide” to pursue a deal, or simply want to bounce an idea by us or compare notes on what you’re seeing in the market.

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