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A recent article in Forbes chronicles the rise in popularity of private equity. According to the article, as of 2021 private equity firms accounted for 20% of U.S. businesses, and between 2016 – 2021 the number of firms increased 58%.
As the name implies, private equity invest money to buy businesses. Once a private equity firm acquires a company its goal is to maximize its value and then sell the company for a profit.
For the private equity firm (and its investors) and the owners of the companies in which they invest, this is a great business model that takes time, diligence, and patience but the payday is epic. For employees of companies that are bought by private equity firms what comes after is uncertain and, according to Forbes, it is a fact that the company will be sold on average within 5.6 years. For professionals who’ve staked their future in a particular job, that’s a head-spinning and rapid set of changes.
In the same way leveraged buyouts radically altered the business landscape in the 1980s and 1990s, private equity is fascinating because of the long and deep web it spins. For accredited or institutional investors, it offers aggressive investments with potentially sky-high returns within a relatively short time frame. Working in private equity can be both challenging and lucrative.
Because of private equity’s growing influence on U.S. business and, subsequently, the job market, here are some things to consider about private equity no matter which strand of the web you may find yourself:
Unlike publicly traded companies beholden to broadly distributed shareholders, private equity firms are only accountable to themselves and the investors that give them the capital to operate, a portion of which may come from the private equity firm itself.
If you work for a private equity firm, you may be able to participate in “capital calls,” which allow employees to invest in its company investment funds with potential returns far greater than salaries and bonuses.
Private equity firms aren’t in the game for the long term. They’re players and if you want to work for one, or succeed in a company they’ve acquired, you must be hyper-results-oriented and demonstrate immediate value to the balance sheet.
If you work for a company acquired by a private equity group you may find the ownership to be more involved in the day-to-day operations than it would be within a publicly traded company. What you do may roll up to them instead of the standard manager or supervisor path you’re accustomed to.
When a private equity company acquires a company, it is common to execute an immediate restructuring that may include a change in the company’s leadership team, installing members on the company’s board, and instituting changes that may lead to staff terminations. Somebody is suddenly on a board of directors, and somebody else suddenly loses their job.
If you have professional experience in mergers and acquisitions private equity may be a good home for you. That’s their bread and butter in building their portfolio.
If you work for a private equity firm you may end up working across different companies or you may be moved from one company to another. That can be an asset or a liability depending on the circumstances.
Unlike mergers and acquisitions of publicly traded companies that want to move toward stability and predictability to assuage their shareholders, if you work for a company acquired by a private equity group, change is built into the system. You’re not working toward stasis. You must be able to thrive in that kind of environment.
According to Forbes, the increase in private equity groups has created a more competitive landscape. Private equity of the future will be more specialized. In addition to strict criteria to determine what companies to acquire, firms will focus on a single sector instead of a diversified portfolio to decrease their competition with other private equity operators.
Ultimately, job seekers should investigate the ownership of companies to which they apply. If you target a company owned by a private equity group, you should expect the company culture, workload, expectations, and future to be tied to that fact.
Philip Roufail contributed to this article.
Scott Singer is the President and Founder of Insider Career Strategies Resume Writing & Career Coaching, a firm dedicated to guiding job seekers and companies through the job search and hiring process. Insider Career Strategies provides resume writing, LinkedIn profile development, career coaching services, and outplacement services. You can email Scott Singer at scott.singer@insidercs.com, or via the website, www.insidercs.com.
