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This risk has not deterred both management and non-executive directors from becoming PE 'serialists', however, according to a new report released by business and financial adviser Grant Thornton and board recruiter, Directorbank.

The survey of 283 executive and non-executive directors that have completed at least one private equity deal, found financial directors (FDs) have a 28 per cent chance of being replaced should they become involved in a private equity backed business, while CEOs have a 24 per cent chance of being replaced.

Private equity 'serialists' 

The risk for non-executive directors including chairmen was less but still significant, with more than one in ten (12 per cent) changed during private equity deals.

The research aimed to understand the private equity deal process from the point of view of those management teams backed by PE houses.

A key finding was that the UK has now followed the trend of the US in creating private equity 'serialists', a growing body of directors who have completed three or more PE deals, with more than two fifths of directors (41 per cent) now falling into this category.

Jonathan Hick, founder and director of Directorbank, pointed out that when a football team is on a bad run the chairman fires the manager.

"In the UK today, at any one time, there is a queue of over two thousand, highly experienced directors ready and waiting on the touchline to run with a private equity ball. It has become a superleague of modern business."

Reluctance to work with same PE houses again 

The research found that despite the management turnover, directors were largely satisfied with the process.

Sixty-seven per cent were happy to deal with the same investor again, while 25 per cent would prefer to deal with a different private equity investor. A small but significant 8 per cent would prefer to avoid private equity investors altogether.

This was again split, however, between non-executives and executives – including CEOs and FDs – who showed a far greater reluctance to work with the same PE houses again.

David Ascott, head of private equity at Grant Thornton, said that the research was set to help directors prepare for the sometimes challenging realities of private equity investment.

"Finance directors in particular suffer from several risk factors including the demands of leverage calling for a significant change in financial sophistication, external investors scrutinising their work more closely than that of other executive directors, their skills being seen as more of a commodity," Ascott continued.

Financial expectations either met or exceeded

Management changes were seen to be somewhat or fully justified by 74 per cent of directors surveyed, indicating these factors would continue to impact on private equity investing.

Anecdotal evidence suggested those executive directors already successful in one deal were highly prized for future assignments, however, according to Ascott.

In examining management returns, the survey found many directors declined to offer monetary figures, instead reporting their gains as 'significant', suggesting the average reported deal return of £1.53 million was considerably lower than the market reality.

Seventy per cent of respondents had their financial expectations either met or exceeded, with only 18 per cent seeing return 'significantly below hopes'.

Saying goodbye to a corporate career 

Private equity 'serialist' Lars McBride has completed seven MBIs in engineering and manufacturing over the last 15 years, the most recent being MESL in August 2007. 

Formerly FD of Portals plc, he did his first deal at the age of 41. He believes the biggest risks are not to do with money but career.

"When you do one of these deals you are probably saying goodbye to a corporate career. It took 10 months to do my first deal, and I didn’t earn anything in that time. But the reward is being the boss."

The research delved into what motivated directors to pursue a private equity backed buy-out or buy-in.

While, unsurprisingly, the prime motivator was to build wealth (50 per cent), a fifth (18 per cent) of those surveyed said their key reason for seeking a deal was to "pursue a more ambitious vision", while the desire to take ownership and the ability to make decisions faster were both significant drivers also.

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Related links

• Grant Thornton
• Directorbank