As an industry, private equity relies on relationships. Accessing an industry expert for advice or day-to-day guidance can be one of the key factors of a successful acquisition. These experts, frequently operating executives, work alongside private equity groups for everything from quick expert insights to hands-on leadership of a portfolio company. In particular, healthcare industry executives’ “been there, done that” understanding of the industry’s regulations, dynamics, opportunities, and pitfalls are critical to successful private equity investing.
What Roles do Industry Executives Play?
Executive interactions with private equity groups can be as short as a “what do you think” conversation over dinner to working on a series of investment opportunities over a decade. Regardless of the scope and duration of the role, these are official positions and private equity groups compensate the executives accordingly. These interactions center around an executive’s interests, capabilities, and relationship with the private equity group. Common roles include:
Expert Network: Through either network intermediaries such as GLG, AlphaInsights, and Third Bridge or via informal private equity relationships, healthcare executives provide their perspectives on particular markets, companies and strategies based on their area of expertise. Transactional in nature, it creates an opportunity to start a relationship with private equity groups and generates modest hourly income with minimal work.
Consultant: Private equity groups will identify executives from their network with the insight and availability to engage on a variety of different projects. Consultants work on anything from investment thesis vetting or investment opportunity due diligence to portfolio company value creation plan development. The more involved consultant relationship can lead to deeper engagement with private equity firms over time. Consulting work typically includes hourly fees and may include success incentives.
Private Equity Operating Partner: Executives in these roles work in a more dedicated fashion with specific private equity firms and their investment teams to pursue investments and drive portfolio company value creation. Acting in both part-time or full-time roles, operating partners help develop investment theses, assess deals, conduct due diligence and engage actively with a portfolio company as a member of the private equity team. Given the range of activities and roles, compensation varies broadly, typically including an on-going cash component and success based incentives.
Executive in Residence: An executive in residence (EIR) will work with a particular private equity group to craft an investment thesis, identify a platform investment, support execution of the investment and ultimately lead the new portfolio company. EIRs typically receive cash compensation during the search process and a founding CEO package on consummation of the platform investment.
Deal CEO: The deal CEO works independently to catalyze an investment strategy with a similar objective to the EIR - namely leading a private equity group backed platform company. A deal CEO will leverage their specific market insights and relationships to craft a thesis, identify a platform investment and attract a private equity group partner to consummate the portfolio investment. A deal CEO has, in theory, more flexibility to choose their private equity group partner and typically enjoys the best economic bargain if and when the deal closes.
How Can Executives Identify Opportunities to Work With Private Equity Groups?
The short answer: finding opportunities to work with private equity groups is easier said than done. The private equity/executive market is both transactional and relationship based. Private equity groups turn to known executives in their direct and indirect networks with specific knowledge and expertise relevant to a transaction. As an executive, the best way to get involved with private equity groups is to work with private equity groups - in any role - and use your success to attract a private equity group’s attention.
The more challenging task is determining how to access the private equity market if you’ve never worked with a private equity group before. Rather than relying on luck, this is the time to leverage your network effectively. And, if you’ve communicated your goal of working with a private equity group to your network, and still aren’t seeing results, it might be time to bring in an expert.
Bancroft Group focuses on partnering with healthcare executive leaders and top-tier private equity firms. If you’re a top healthcare executive interested in working with private equity groups, reach out. The Bancroft Group is happy to answer your questions and work with you to determine the best fit for you in the private equity market.