The Role of the CEO in the Success of Private Equity Investments (Spectra Investments)

Summary

• The study covers 103 CEOs of 102 companies backed by private equity funds, and technology companies make up 37% of the sample.p.4
• Retained original CEOs hold 37% of company shares on average, versus 7% for CEOs installed by the fund.p.3
• Revenue of the group where the original CEO was retained grew 89% in two years and EBITDA grew 35%.p.7
• Fund-installed CEOs are mostly found where the fund took control: 66% average stake and 77% of companies with fund control.p.5
• Both groups of CEOs have an average age of 45 at the time of the fund's investment.p.11
• Only 12% of fund-installed CEOs were company founders, against 73% among retained original CEOs.p.11

Key insights

1. Companies that kept the original CEO throughout the investment outperformed on revenue, EBITDA, EBITDA margin and net debt over two years.p.7
2. The revenue of companies where the original CEO was retained grew 89% in two years, with EBITDA up 35%.p.7
3. Retained CEOs own 37% of the shares on average, while fund-installed CEOs own only 7%.p.3
4. Around 40% of executives in both groups hold stock options.p.12
5. STEM training prevails among retained CEOs (54%), while fund-installed CEOs are split between STEM (40%) and finance (46%).p.3
6. Replacing the CEO at the time of investment happens mostly under a management buy-in model, where the fund imposes its management.p.5
7. Founders account for 73% of retained original CEOs but only 12% of fund-installed CEOs.p.11