What is it like to work for a private equity-owned company?
May 13, 2021 8:31 PM Subscribe
I currently work for a large, public company but have a job offer from a small, fast growing private equity-owned company. I've never worked for a PE-owned company before. What kind of PE-specific factors should I keep in mind as I consider this offer? Snowflakes inside...
I have a job offer from a small company (~$150MM) owned by a private equity firm. I've only worked for large, publicly held companies so far. I usually associate PE-owned companies with older, dusty businesses that are flat to declining where a PE firm comes in, cleans house, slashes costs, cleans up the P&L, then turns around and sells in three years. However, this company is owned by a PE firm that seems to invest in early growth stage companies (the businesses they own are generally new and "trendy"). They've also owned the company I have an offer from for 8 years already, which struck me as odd. I do know that my job offer is part of an overall push of bringing in talent from big companies to further accelerate growth.
I have a few PE-related questions I'm hoping someone might be able to help me with:
1) Aside from the risk of being sold in the future and facing layoff, what other significant risks should I be aware of if I join a PE-owned company?
2) In terms of compensation, I'm familiar with equity such as stock options and restricted stock units in addition to base salary+bonus structures. Would a PE-owned company offer anything analogous to this with an offer? The salary offered to me is on the high end.
3) Anything else I should be aware of if I work for a company owned by PE?
Thank you!
I have a job offer from a small company (~$150MM) owned by a private equity firm. I've only worked for large, publicly held companies so far. I usually associate PE-owned companies with older, dusty businesses that are flat to declining where a PE firm comes in, cleans house, slashes costs, cleans up the P&L, then turns around and sells in three years. However, this company is owned by a PE firm that seems to invest in early growth stage companies (the businesses they own are generally new and "trendy"). They've also owned the company I have an offer from for 8 years already, which struck me as odd. I do know that my job offer is part of an overall push of bringing in talent from big companies to further accelerate growth.
I have a few PE-related questions I'm hoping someone might be able to help me with:
1) Aside from the risk of being sold in the future and facing layoff, what other significant risks should I be aware of if I join a PE-owned company?
2) In terms of compensation, I'm familiar with equity such as stock options and restricted stock units in addition to base salary+bonus structures. Would a PE-owned company offer anything analogous to this with an offer? The salary offered to me is on the high end.
3) Anything else I should be aware of if I work for a company owned by PE?
Thank you!
PE has gotten trendier in the last decade or so, partly because it insulates founders and powerful managers from activist investors but mostly because there's so much more fargin' money in the hands of super rich people that they don't need the liquidity the stock market offers.
I wouldn't think the risks of a PE firm like he one you describe being sold off in some disruptive way are any higher than those for a publicly held company. Things can always go bad, or it can become so attractive to a big player that they make a "can't refuse" offer to the owners/stockholders, but that can happen to any company (or in a big company to your department or location.)
Some PE firms definitely offer equity but the liquidity makes it harder to sort out how much that could be worth (if anything.)
If I had to bet, it'd be on the size changes is likely to be a higher impact on your work experience than the ownership changes.
posted by mark k at 10:17 PM on May 13, 2021
I wouldn't think the risks of a PE firm like he one you describe being sold off in some disruptive way are any higher than those for a publicly held company. Things can always go bad, or it can become so attractive to a big player that they make a "can't refuse" offer to the owners/stockholders, but that can happen to any company (or in a big company to your department or location.)
Some PE firms definitely offer equity but the liquidity makes it harder to sort out how much that could be worth (if anything.)
If I had to bet, it'd be on the size changes is likely to be a higher impact on your work experience than the ownership changes.
posted by mark k at 10:17 PM on May 13, 2021
+1 to very high risk of sale at 8 years.
The C-Suite will be formidably more credentialed and slick than that of a typical founder or family-owned private company of the same size.
The sponsor may be very conspicuous in governance and analytics — as in several partners and principals on the Board along with several independents hand-picked by the sponsor, interacting with management, often well below the C-Suite, weekly if not daily. Sometimes associates and analyst are free to roam as well. Their work product and the data queries that generate will be present for you, and in a big way if you are much above individual contributor. This can be awesome, given the brainpower made available to the company, or it can be terrible, like everyone’s worst cliche of a Big 3 strategy engagement except it will never end.
There are about as many models for employee equity participation or phantom equity participation in sponsor-owned companies as there are sponsors. They may offer you something nice or nothing at all (substituting cash) or in between. Read the papers carefully and get a lawyer to look at them if you are relying on the equity offer as a real piece of the decision to join.
posted by MattD at 10:18 PM on May 13, 2021
The C-Suite will be formidably more credentialed and slick than that of a typical founder or family-owned private company of the same size.
The sponsor may be very conspicuous in governance and analytics — as in several partners and principals on the Board along with several independents hand-picked by the sponsor, interacting with management, often well below the C-Suite, weekly if not daily. Sometimes associates and analyst are free to roam as well. Their work product and the data queries that generate will be present for you, and in a big way if you are much above individual contributor. This can be awesome, given the brainpower made available to the company, or it can be terrible, like everyone’s worst cliche of a Big 3 strategy engagement except it will never end.
There are about as many models for employee equity participation or phantom equity participation in sponsor-owned companies as there are sponsors. They may offer you something nice or nothing at all (substituting cash) or in between. Read the papers carefully and get a lawyer to look at them if you are relying on the equity offer as a real piece of the decision to join.
posted by MattD at 10:18 PM on May 13, 2021
I worked at a small, slow-growth tech company that was owned by private equity (who I don’t believe were thrilled about the slow growth part). They’d held the company for about three years when I started, and still own it four years later. The talk of sale was constant. Not a single week went by in the two and a half years I worked there that there weren’t conversations about selling. Some of that was just us low-level employees speculating, but still. The point is that you know you will be sold one day.
Keep in mind that whatever industry you’re in, private equity is not. In my case, my company was s software company, but PE doesn’t care about software. PE cares about making money. If there are shortcuts to take, corners to cut, this company will probably take them.
One of the big corners to cut is staffing levels. We were chronically understaffed. People would leave and not be replaced, or, if they were, it was by kids who just graduated from college.
The worst was middle management, of which we had little. That sounds like it would be a good thing, but when you’re doing the work of three people, it’s helpful to have someone clarify your priorities and do stuff for team morale.
The same did not apply to upper management. They were constantly hiring director-level positions from name-brand companies to make their executive team look better to potential buyers.
It’s hard to separate how much of this was due to PE ownership and how much was just due to shitty company culture, but it didn’t make me want to jump to work at another PE-owned place.
posted by kevinbelt at 4:30 AM on May 14, 2021 [3 favorites]
Keep in mind that whatever industry you’re in, private equity is not. In my case, my company was s software company, but PE doesn’t care about software. PE cares about making money. If there are shortcuts to take, corners to cut, this company will probably take them.
One of the big corners to cut is staffing levels. We were chronically understaffed. People would leave and not be replaced, or, if they were, it was by kids who just graduated from college.
The worst was middle management, of which we had little. That sounds like it would be a good thing, but when you’re doing the work of three people, it’s helpful to have someone clarify your priorities and do stuff for team morale.
The same did not apply to upper management. They were constantly hiring director-level positions from name-brand companies to make their executive team look better to potential buyers.
It’s hard to separate how much of this was due to PE ownership and how much was just due to shitty company culture, but it didn’t make me want to jump to work at another PE-owned place.
posted by kevinbelt at 4:30 AM on May 14, 2021 [3 favorites]
I worked for a long time at a company that was first public, then bought out by PE, then later went public again. As a mid-level employee, the main difference the PE ownership made was that there was no share/option scheme. Apart from that, I would say the PE ownership was marginally more focused on the long term growth of the company until they got close to a point of sale at which time there was a noticeable crackdown on hiring and expenses of all kinds. When we went public again, the company became a lot more focused on meeting numbers on everything, but hey at least there was a share scheme again (I left not long after that for unrelated reasons).
posted by crocomancer at 5:15 AM on May 14, 2021
posted by crocomancer at 5:15 AM on May 14, 2021
I worked for a company that was owned by a private holding company (so not quite PE but related) and when the product launch failed, just after I'd left, the company got shut down in the most impersonal and ruthless fashion I've ever seen. No warning, no severance, no COBRA (because the company was gone,) just a couple of goons handing out clear plastic bags for people to put their personal items in and then locking the doors.
That's probably a worst-case scenario, but one to keep in mind. In this specific case I need to second kevinbelt - the ownership did not know or care about the business of the company I worked for, they just wanted to see money, and when they didn't, they didn't ask questions or try to improve things, they just bailed. (They'd gotten substantially snowed by the company founder, which was part of the problem - they didn't know enough to ask the right questions and set the correct expectations. The founders did juuuust fine out of the deal, got huge salaries to do zero work for five years, and everyone they hired got fucked.)
posted by restless_nomad at 7:05 AM on May 14, 2021 [1 favorite]
That's probably a worst-case scenario, but one to keep in mind. In this specific case I need to second kevinbelt - the ownership did not know or care about the business of the company I worked for, they just wanted to see money, and when they didn't, they didn't ask questions or try to improve things, they just bailed. (They'd gotten substantially snowed by the company founder, which was part of the problem - they didn't know enough to ask the right questions and set the correct expectations. The founders did juuuust fine out of the deal, got huge salaries to do zero work for five years, and everyone they hired got fucked.)
posted by restless_nomad at 7:05 AM on May 14, 2021 [1 favorite]
I worked at one and it was the worst experience of my working life. It's like a start-up of "everyone band together! We're scrappy!" but it is all choice, they have the money, they just choose not to spend it.
Literally all they cared about was making money, which you're probably thinking is the same as any company, but no, I mean the ONLY thing they care about is making money, literally nothing else mattered at any time.
Oh, we can save 10k by moving offices to one down the hall and just make all the employees move and re-assemble all the cubicles and desks? Do that! Oh, half the team left and the rest of the team is working 60-70 hours to make up for it? Clearly we don't need to hire more, they're handling it. Go have a picnic to improve morale! But like, people should bring their own lunches, picnic blankets, and any activities. Buy a foosball table so people know we're fun! Send out an email to remind people they may only play foosball on their lunch break or after hours.
My PE also had this set of best practices and every company had to implement and follow, no matter what. This best practice is really for a finance company and you're a software company? Don't care, you have to do it too. Oh and you have to report out quarterly against every best practice.
I would echo kevinbelt's experience as very much mine as well regarding hiring and management/executive teams (I was there for 9 months, I saw 3 CEOs of escalating pedigrees). Every new hire was straight out of college and paid bottom of market.
posted by magnetsphere at 7:12 AM on May 14, 2021 [1 favorite]
Literally all they cared about was making money, which you're probably thinking is the same as any company, but no, I mean the ONLY thing they care about is making money, literally nothing else mattered at any time.
Oh, we can save 10k by moving offices to one down the hall and just make all the employees move and re-assemble all the cubicles and desks? Do that! Oh, half the team left and the rest of the team is working 60-70 hours to make up for it? Clearly we don't need to hire more, they're handling it. Go have a picnic to improve morale! But like, people should bring their own lunches, picnic blankets, and any activities. Buy a foosball table so people know we're fun! Send out an email to remind people they may only play foosball on their lunch break or after hours.
My PE also had this set of best practices and every company had to implement and follow, no matter what. This best practice is really for a finance company and you're a software company? Don't care, you have to do it too. Oh and you have to report out quarterly against every best practice.
I would echo kevinbelt's experience as very much mine as well regarding hiring and management/executive teams (I was there for 9 months, I saw 3 CEOs of escalating pedigrees). Every new hire was straight out of college and paid bottom of market.
posted by magnetsphere at 7:12 AM on May 14, 2021 [1 favorite]
I spent the last several years of my career PE-adjacent; that is, assessing job candidates for portfolio companies. Working for a PE-owned company is definitely different and some people love it while others hate it.
As a rule, the company will tend to run lean and fast. Especially in the low- to mid-market space, there will be an emphasis on achieving as much as you can with as little effort as you can, as quickly as you can. The pace can be dizzying for people who have grown up in larger, more staid companies, and will accelerate as the company is being polished up for sale. They may actually be hiring *you* to make the company look better at sale. When it sells, it may go to another PE company or to a strategic investor and no one really knows which will win out until right before the papers get signed.
OTOH, there are numerous opportunities to accomplish something you consider meaningful and, if you excel and capture attention, it can stand you in good stead moving forward. PE firms that aren't just pump-and-dump operations will often pluck outstanding people out of their portfolio companies for either operating roles in the PE firm or promotions into other portfolio companies they own in the same/similar industry. And you will generally be surrounded by very bright and accomplished people, both in the portfolio company and in the PE firm itself, so it can be an exciting environment.
posted by DrGail at 8:16 AM on May 14, 2021
As a rule, the company will tend to run lean and fast. Especially in the low- to mid-market space, there will be an emphasis on achieving as much as you can with as little effort as you can, as quickly as you can. The pace can be dizzying for people who have grown up in larger, more staid companies, and will accelerate as the company is being polished up for sale. They may actually be hiring *you* to make the company look better at sale. When it sells, it may go to another PE company or to a strategic investor and no one really knows which will win out until right before the papers get signed.
OTOH, there are numerous opportunities to accomplish something you consider meaningful and, if you excel and capture attention, it can stand you in good stead moving forward. PE firms that aren't just pump-and-dump operations will often pluck outstanding people out of their portfolio companies for either operating roles in the PE firm or promotions into other portfolio companies they own in the same/similar industry. And you will generally be surrounded by very bright and accomplished people, both in the portfolio company and in the PE firm itself, so it can be an exciting environment.
posted by DrGail at 8:16 AM on May 14, 2021
Response by poster: Thank you for all these thoughtful answers, each has really helpful info! Would love to hear more if there are any other observations out there.
posted by dede at 1:05 PM on May 14, 2021
posted by dede at 1:05 PM on May 14, 2021
I worked for a 50% PE owned company. I thought my story wasn't terrible:
1. I started at the company (a small tech company with around your revenue) 10 years ago. I got some "stock options" which work a bit different than public stock options.
2. The PE company came in maybe 3 years later?. Main change was that there were some layoffs and we got a new CEO that everyone that was a joke. some of these shares got cashed out
3. I didn't really see any differences. Company seemed to be run more professionally (moved from a office-space type crap place in Chicago suburbs to the loop for one) and the PE seemed to actually 'get' us
4. 6 years later we got bought by one of the biggest companies in the world. 1/4 of people have quit within 1.5 years of the announcement. It's been not bad but not amazing.
it will be bought soon.
posted by sandmanwv at 1:08 PM on May 14, 2021
1. I started at the company (a small tech company with around your revenue) 10 years ago. I got some "stock options" which work a bit different than public stock options.
2. The PE company came in maybe 3 years later?. Main change was that there were some layoffs and we got a new CEO that everyone that was a joke. some of these shares got cashed out
3. I didn't really see any differences. Company seemed to be run more professionally (moved from a office-space type crap place in Chicago suburbs to the loop for one) and the PE seemed to actually 'get' us
4. 6 years later we got bought by one of the biggest companies in the world. 1/4 of people have quit within 1.5 years of the announcement. It's been not bad but not amazing.
it will be bought soon.
posted by sandmanwv at 1:08 PM on May 14, 2021
I work for a PE owned company and I am not sure there are any broad conclusions that can be drawn. It really depends on the PE group's approach as well as the management team.
The company I work for has been sold twice now to different PE group's and both times there was more investment and hiring not layoffs.
Nevertheless it's always been a lean operation although I don't know how different that is from public companies from what I hear.
Some do offer stock options but they tend to be illiquid and the only time you can cash out is when the company is sold.
A potential red flag is the amount of debt that the company is carrying. That is what has caused a lot of the prominent bankruptcies as the business isn't able to handle a downturn that would have been manageable without the high level of debt.
posted by nolnacs at 1:34 PM on May 14, 2021 [1 favorite]
The company I work for has been sold twice now to different PE group's and both times there was more investment and hiring not layoffs.
Nevertheless it's always been a lean operation although I don't know how different that is from public companies from what I hear.
Some do offer stock options but they tend to be illiquid and the only time you can cash out is when the company is sold.
A potential red flag is the amount of debt that the company is carrying. That is what has caused a lot of the prominent bankruptcies as the business isn't able to handle a downturn that would have been manageable without the high level of debt.
posted by nolnacs at 1:34 PM on May 14, 2021 [1 favorite]
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There are plenty of PE shops that focus on growth equity, particularly saas-focused software companies. They are running a much different playbook than just taking out costs.
posted by The Ted at 9:14 PM on May 13, 2021 [2 favorites]