What it takes to be a private equity portfolio CEO: with John Burns

“You've really got to look at the cycle, what the exit looks like and the timing of the exit. Then, how you’ll manage that business, grow the business and optimise the business so that you’re leaving it in better cultural and financial health during that cycle. It’s about timing everything perfectly for a really positive exit.”

The thought of leading a private equity backed company is exciting for a lot of people, and we’ve seen a greater interest in executives making the move to portfolio companies in recent years. But the PE environment moves at pace and is not for everyone. It can be intense and challenging, with many nuances not found elsewhere.

So, what exactly does it take to run a portfolio company? We asked John Burns, a serial private equity CEO and one of Allura’s valued C-Suites. John has had experience with every type of investment cycle and across a variety of sectors, from health and veterinary services to childcare.

He has delivered success across some challenging environments, including pivoting a childcare business (sometimes, daily) through Covid. He also grew a veterinary business from 32 to 250 hospitals in four years, exiting at the start of the pandemic.

Over the years, he has developed the ability to quickly assess what a company needs, identify its leverage points and motivate a team to deliver against the strategy.

Here are some of the key areas John looks at when taking on a CEO role at a portfolio company:

Decide what legacy you want to leave
In every one of John’s roles, it’s been his mission to ensure the business he heads up is in better financial and cultural health during the PE cycle.

To that end, his focus is on maintaining a quality, market leading service. The transition must be seamless, as staff and customers shouldn’t feel the PE cycle or changes of ownership. After that, it’s about developing a culture of learning and continual improvement, attracting good people to the wider organisation, and innovating with processes, product, services and new technology – to build a positive culture and drive organic growth.

“The most important thing for me is to build off the legacy of the previous owners and founders. And ultimately build a great brand that has a bright future. “

Be clear on what the exit looks like from day one

Unlike private and public companies, PE backed companies work on a three-five-year investment cycle. This is both a benefit and a challenge. As a CEO, you’ve got to balance operating the business with growing it, while keeping the exit point in mind – all in a finite amount of time.

If it’s an IPO, you’ll need to build out the necessary structures and the Boards, to prepare the business for public trading and scrutiny of a wider market review. If you’re looking at a trade buyer, it’s important to keep an eye on your support costs which will often be priced as synergies at exit. And if it’s a PE buyer, then margin health is key, as is a clear history of adding value during the current PE ownership. You don’t want to be handing over a business that needs a turnaround under the new ownership.

Know where you’re going

Look at what stage of the investment cycle you’re at. Are you at the beginning of one? Are you happy to invest in greenfields, which will take two to three years to mature? Or do you just want to acquire businesses that are already matured? And will you need to build something big enough to attract international interest?

If that’s the case, you’ll become a new market entry point for international players, as international PE investors are often keen to enter the region via the ANZ platform. So, “It’s important you create a solid entry point to the ANZ market, with a lot of local runway for growth, and potential growth into Asia.”

Build your team and financial health

To ensure a positive culture, it’s critical to understand the dynamic and strength of the exec team early on. So, this is one of the first things John focuses on. Are there any gaps that need filling? Will he need to bring people in that are proven in a certain area? And what’s the calibre of the current team? “Culture is very important to me, so understanding my team from the get-go sets the tone for a positive experience for everyone.”

Margin health is another important consideration when looking to leave the business in a stronger financial position. As someone who has always run multi-sites, John looks at the value loss, potential value gain, expense base and revenue drivers of the individual businesses. Just as important is considering whether the businesses are appropriately resourced and supported, or whether they are oversized and need to be optimised.

“It’s really about assessing the health of the individual businesses in the network, any stresses on margin, and then looking at your support structure. Is it appropriate for what comes next? It could be a sale, a growth cycle or build cycle. You've got to pick where you are in the cycle.”

Have a strategy and stick to it

While all CEOs will have a vision for what the future looks like, portfolio CEOs must deliver results fast. There’s little time to waste. It’s important, then, to set a sharp strategy, lead with clarity and know what KPIs you want the business to achieve at every stage of the investor cycle.

Investors know what their exit looks like and will have a return strategy in mind. And a PE executive team will be highly incentivised to ensure a positive exit for the PE owner looking to generate a solid return. That’s why PE CEOs must decide what good looks like.  Stick to it. And bring everyone on the journey with them.

Be willing to partner with your PE sponsor

Private equity firms don’t like or want surprises, so stakeholder engagement should be every PE CEO’s main focus. It’s important to find touchpoints for your sponsor to have visibility on the business and operations. And to work with them to determine the journey. Did they acquire an underperforming business that needs a turnaround? Or is this a high growth investment, and what will that growth look like? Acquired or organic? Or, is this a turnaround investment that also requires you to grow the business?

“As CEO, you’re coming in with tangible, measurable outcomes and have to be ready to partner with your PE sponsor. It’s a real, strong, broad partnership.”

Stay agile and move fast

Cautious CEOs that prefer a classic Board structure and steady pace are less suited to the PE environment. Because PE companies have a predetermined investment cycle, there’s not much room to get it wrong. If there’s any disruption to progress, a PE CEO will need to pivot. And find strategic and tactical ways to drive value in that business. So being agile, moving quickly, keeping momentum and investing in the continual performance of the executive team is key.

That said, “Portfolio companies are not as restricted as public companies. So, there’s room to be agile – in terms of the strategy and the use of equity or debt that’s suited to the Buy-Build-Sell, Buy-Turnaround-Sell, or Turnaround-Build-Sell cycles.”