Private equity firms step up use of interims

Private equity houses are parachuting more interim managers into their portfolio businesses to implement turnaround strategies in order to manage debt levels and boost profitability, says Interim Partners, the leading provider of interim management solutions.

Interim Partners says that around 80% of the mandates it receives from private equity houses are now for interim managers to implement turnaround strategies. This reverses the pre-credit crunch trend when 90% of private equity mandates were related to pre and post-acquisition work – such as due diligence and implementing post acquisition management changes.

Simon Gough, Director of Private Equity at Interim Partners:

“Portfolio companies can be especially vulnerable in the current economic climate because they are often heavily leveraged. With debt hard to obtain and business conditions challenging PE houses are taking pre-emptive action to ensure they don’t breach bank covenants.”

“An unprecedented number of PE houses are in a situation where their investments are underwater. Often what is needed is an outsider with a fresh pair of eyes who can make difficult decisions at an investee company and follow those through.”

“Stagnation in the deal market has seen PE houses turn their focus on improving portfolio companies. In normal conditions PE houses would be looking to exit investments through IPOs, but with investor confidence rattled, and growing numbers of portfolio companies underperforming, priorities have shifted.

“Unable to exit investments and create value through IPOs, PE houses are looking to create value for their investors by making operational improvements in their investee companies. Interim managers are ideally placed to deliver that kind of value. Interims also have the ability to deliver that change through hands-on management."

Interim Partners says that private equity houses prefer to use interim managers with relevant sector experience who have also worked in a PE-backed business before and can deal with the demands of a PE owner.

Simon Gough says:

“Business turnarounds commonly require skills and experience which are not always found in the permanent management team.”

Interim Partners says that many of the managers it has placed to implement turnaround strategies are with struggling investee companies in the retail sector.