What We're Digging Into: Unpredictable markets, high cost of capital, and changing strategies will mark 2024 and beyond for Private Equity. The path forward will require a deeper focus on sustainable talent practices.

Why It Matters: For many PE firms, investment cycles of 3-5 years meant little time was spent cultivating great leadership. That was the next investor’s problem. Times have changed…. PE groups are now scrambling to adjust to the new realities of longer hold times with a renewed focus on operational excellence.

Show me the incentives and I’ll show you the behaviors….

Over the mostly bullish run in the past 10-15 years, PE leaders have historically prioritized financial strategies….and yes, sometime shenanigans to create both real and perceived value.

Sometimes, it’s akin to flipping a house. Buy low, get really levered, add some paint to hide the flaws, and sell for a profit. Win-win, right?

Maybe not…

Many of the same levers don’t have the same impact as they did, forcing investors to consider longer term, sustainable paths forward.

And I’m here for it….

Here’s the new reality:

Extended Holding Periods: Your investment now means retaining the company for far longer durations, meaning you can’t hide the flaws, you have to fix them.

Stubborn Interest Rates: The surge in interest rates won’t abate much in the coming year. When your strategy has been to “lever up”, this is a painful reality. Simply put, healthcare companies must now elevate their performance to simply achieve the same outcomes of just a few years ago.

M&A Activity: More deals involving merging smaller healthcare operations demand exceptional leadership and management skills. Integrating systems and talent practices becomes more important than ever.

Executive Turnover: I continue to be amazed at how little diligence is done to find executives to run portfolio organizations. Millions of dollars to find and incentivize your new execs, but running the same tired playbook will get you nowhere. The high rate of executive turnover in PE portfolio companies is clear evidence of failure and has a heavy toll on valuations.

The New (again) Path to Value Creation

Things come full circle with talent management. Like—Go find exceptional leaders who are fully aligned to the investment thesis, and inspire stellar performance and a fully engaged workforce.

Crazy, I know.

It’s almost like doing the right thing for the people you employ; means you’re going to do the right thing for the patients you serve…and the investors.

Here’s how to pivot:

Elevate expectations of portfolio HR teams: Your Talent/HR exec should be in the driver’s seat with these new realities. Operational excellence starts with great talent systems that attract and engage top talent for leadership and clinical roles. It can't be transactional HR, focused only on compensation and benefits administration, while making sure you don't get sued. It's about strategic levers to be a force multiplier for every business strategy.

If your current HR can’t meet higher expectations, then you already know what comes next.

HR Leadership at PE Firm Level: Economy of scale doesn’t only apply to portfolio orgs. Savvy PE firms need an HR exec that can help find what works, then apply it more broadly across the portfolio. For example:

• HR systems--Get at group discounts, build expertise with implementation
• M&A Playbooks--Emphasize critical onboarding and retention tactics that apply universally
• Executive search--Find a firm, build a relationship and you'll get massive ROI by getting better fitting talent

This is an enormous opportunity to differentiate disparate investments into a group of predictably high performing organizations, adding value for stakeholders across the spectrum.

Begin with the end in mind: Looking at a 3 year plan to merge a group of smaller practices into a world-class organization that will be enticing to a strategic buyer? Great! Now, work backward from this future state to design the organization, and especially the types of leaders you hire.

Ultimately, your investment thesis should inform all your talent strategies. Each leadership hire, promotion and development strategy should merge at this cross-section, ensuring alignment with the sources of value.

By taking these actionable steps, healthcare-focused private equity leaders can significantly enhance the value and performance of their portfolio companies, ultimately leading to better returns on investments.

This strategic approach also sets the stage for successful exits in the future.

To your success,

Alden Pennington

Founder, Talenta HR Group

P.S. Whenever you’re ready, there are 3 ways I can help you:

1. Ready to find the talent to fuel your healthcare teams »> Click here to book a discovery call.​​
2. Need to align your team to your strategy? Discover the power of our tailored Predictive Index Workshops​​
3. Looking for strategic HR leadership, but not ready for a full-time commitment? Explore our Fractional CHRO solutions.​