Generation next

Succession planning: it’s a perennial challenge for all organisations. For firms in private equity, an industry with a history that can be counted in mere decades, the challenge is ongoing. A number of the world’s most influential private equity firms still have their venerable founders at the helm and inevitably these pioneers will at some stage have to hand over the reins to the younger generation.

In many cases these processes defy description as a simple replacement of one leader with another. For firms that have developed into multi-pronged, global franchises, a deep bench of talent is needed, talent that can graduate from deal-maker to decision-taker.

A smooth succession can inspire confidence and grow trust among LPs, most of whom want to see the economics of the firm – and the key man risk – spread further than a few dominant individuals. The industry is dotted with examples of effective, smooth transitions. San Francisco-based Hellman & Friedman in 2009 saw Warren Hellman hand over the chairman role to the chief executive Brian Powers, who was in turn replaced by Philip Hammarskjold. In Europe London-based Cinven is affirming the respect of its LPs by working through a “structural evolution” that has seen Hugh Langmuir replace Robin Hall, who has been at the firm’s helm since 1988 as managing partner. Hall continues the day-to-day management of the firm while the €6.5 billion 2006 is being invested and realised. Warburg Pincus, General Atlantic, Permira: all firms that have transitioned responsibility from one generation to the next.

Conversely a botched succession can severely damage a franchise or at worst consign it to history.

Considering what is at stake, many LPs are understandably eager to learn how GPs plan to move ahead in a fashion that is more like Hellman & Friedman and less like Alchemy Partners. LPs want to know which executives are being groomed to eventually take leadership of the firm, which are the heirs apparent.

However, a number of major private equity firms have yet to create clear succession plans, or if they have, to communicate these to LPs. Part of the reason for this reticence has to do with founders, such as those at The Carlyle Group and Kohlberg Kravis Roberts, being entirely confident that they will lead their firms for many, many years to come. And so why rush out with a designated heir apparent? Indeed, private equity founders are keen on optionality – they like the ability to exit an investment at a time and in a method of their choosing, and they similarly want to create a “team of rivals” among senior partners who may or may not be tapped to take over the firm.

Keeping in mind the staying power of founders, their hidden succession plans and love of optionality, we have nevertheless attempted to highlight individuals that many market participants believe stand as good a chance as anyone at being groomed for leadership of their respective firms some day.

Charterhouse Capital Partners: Succession in motion

The European powerhouse has a deep bench of partners to call on

Since his arrival at London-based Charterhouse Capital Partners 20 years ago, Gordon Bonnyman has quietly grown the firm into a European powerhouse. Charterhouse has raised more than $10 billion in the last five years and currently ranks as the 22nd largest firm in the world, according to the PEI 300. Wary of publicity and disdainful of any cult of personality, 66-year-old Bonnyman made it clear to investors during the firm’s last fundraise – which saw it corral €4 billion last year – that he would gradually be stepping back during the life of the fund. In terms of who would be a likely candidate to step into Bonnyman’s shoes, “frankly, it’s not that sort of partnership”, says one European industry veteran, who elaborates that Bonnyman oversees a “very true and equal” partnership, quite capable of operating with multiple co-heads. “It is not an ego-centric firm,” he says. That said, among the firm’s team there are several likely candidates for future leadership.

A Charterhouse deal-maker since 1998, Malcolm Offord, 46, has been at the centre of some of its most prominent deals. He originated and led the investments and exits of Tussauds, Avent and Saga. More recently he led the £550 million (€640 million; $813 million) buyout of oil services group Wood Mackenzie from Candover in 2009. “It would surprise a lot of people if Malcolm was not head, or at least joint-head,” says one Charterhouse LP.

Born and educated in France, 45-year-old Lionel Giacomotto joined Charterhouse in 1993. He works on Continental European and UK investments and was initially responsible for the firm’s relationship with Caisse de Dépôts in France. Charterhouse partnered with Caisse de Dépôts, the state-owned investment company, to acquire Dutch technology services company Cegelec in 2001 and French broadcaster TDF in 2002.

Jeremy Greenhalgh, 47, has been at Charterhouse since 1990 – longer than both Offord and Giacomotto – and led the firm’s massively successful investment in gaming business Coral Eurobet. The firm invested a total of €492 million of equity capital in the £860 million buyout of Coral in 2002 and sold the business to private equity-backed leisure group Gala in 2005 for a total consideration of £2.18 billion.

SIlver Lake: Making the grade

Tech firm shines light on the next generation

Jim Davidson

The rise of Silver Lake, the technology-focused buyout firm, has been meteoric. The firm burst onto the scene 10 years ago with a $2.3 billion debut fund and in 2008 it closed its third fund on a little under $10 billion. For years, most employees at the firm did not have job titles on their business cards, co-founder Jim Davidson told PEI earlier this year, the theory being you are either “good enough to work at Silver Lake or you are not”. Among the next generation, Davidson indicated a number of individuals certainly considered “good enough” to carry the card. “Whether it is Egon Durban in London, Ken Hao in Asia, or Greg Mondre, Mike Bingle and Joe Osnoss in New York, the next generation is just as capable, and probably more talented, than the founding partners.” he said. The professionals the 50-year-old Davidson mentions – all in their late 30s or early 40s – have worked for the firm more or less since inception.

Kohlberg Kravis Roberts: Building the franchise

A growing family with no clear heirs

Henry Kravis

With already more than 600 employees and $55 billion in assets, Kohlberg Kravis Roberts considers itself at the cusp of further expansion. And its two co-founders, Henry Kravis and George Roberts, both 66, have no plans to leave the helm anytime soon.

Still, the growth and diversification of KKR’s business has required the rise of several next-generation leaders to positions of prominence within the firm. Kravis and Roberts no doubt consider the sharing of economics and control to be all the more crucial following the departure of two senior partners, Edward Gilhuly and Scott Stuart, in 2005.

Market sources say they would not be surprised to see the following men continue to grow in prominence and take on further responsibility within the firm. All except one are on both the firm’s influential management committee and investment committee. However, Kravis and Roberts are no doubt building a team of next-generation leaders as opposed to grooming any one successor.

Based in New York, 36-year-old Scott Nuttall has touched on just about every function within KKR’s business. Having joined in 1996 as an associate, the former Blackstone Group employee is a deal veteran and has worked on major investments including First Data and Legg Mason. Nuttall is a member of the management committee but also heads KKR’s global capital and asset management group, which includes the growing client team. He was instrumental in the creation of KKR’s publicly listed entities. An LP source said: “Scott Nuttall is probably the best horse they have right now … protecting the brand and the integrity of the firm”.

Based in London, Johannes Huth oversees KKR’s operation in Europe and is on both the management committee and the investment committee. The 49-year-old German joined the firm in 1999 from Investcorp, where he was also a member of the management committee. KKR is growing a deep bench in Europe, making it possible that Huth’s talents could someday be deployed in the New York office as well.

The 44-year-old Alexander Navab joined the firm in 1993. He serves on both the management committee and the investment committee. He has been involved with major deals including The Nielsen Company and Visant. He also co-heads the North American private equity business with Michael Michelson, who joined KKR in 1981.

When Johannes Huth joined KKR’s London office to help it launch a European business, there was one American there to co-lead the effort – Todd Fisher, who had joined the firm in New York six years earlier. Today, the 44-year old remains in London as the global chief administrative officer. The former Goldman Sachs and Drexel Burnham Lambert executive also is on KKR’s global investment committee and is chair of the management committee. Fisher has extensive deal experience, having worked on notable deals like Willis Group and Rockwood Specialties.

CVC Capital Partners: Options from within

The Mike Smith-led firm has potential in the next generation

Mike Smith

Mike Smith, the 57-year-old Luxembourg-based chairman of CVC Capital Partners, has developed the firm into one of private equity’s global elite.  Having been with CVC, which ranks sixth on PEI’s list of the world’s largest private equity firms, for 28 years, he shows no signs of slowing down. The same goes for many of his contemporaries from the generation of founders involved in the 1993 spin-out from Citicorp. “They just can’t seem to leave,” says one LP in CVC’s funds.  In that generation you have Donald Mackenzie, who one insider describes as “the judgement” in the organisation, and Rolly van Rappard – both managing partners – still very much involved in the day-to-day business of the firm. The generation below this features a number of potential heirs to the top roles in the firm.

Jonathan Feuer, 47, has been at the firm for more than 20 years and was made managing partner in 2005. Three years later he was given a global remit when picked to spearhead CVC’s newly created financial institutions sector team. Based in London, Feuer‘s reputation in the firm was cemented by such deals as the acquisition of retailer Debenhams. The Debenhams transaction was one of the most successful deals in private equity history, but drew criticism from outside the industry as the retailer – when re-floated on the public markets – proceeded to issue a series of profit warnings.

Former 3i man and 14-year CVC veteran Rob Lucas – also in his forties – was made managing partner at the same time as Feuer and when the latter moved to head up the financial services sector team, Lucas was left in charge of CVC’s UK investments. His deal experience includes the joint acquisitions of motor services group the AA with Permira and the acquisition of motor repair chain Kwik-Fit.

Other stars among CVC’s next generation include Javier de Jaime, managing partner with responsibility for Spain, Marc Boughton, the managing partner who set up CVC’s debt management business, and Geert Duyck, CVC’s 46-year-old France and Belgium head.

The Carlyle Group: Beyond the big three

An insider and two outsiders stand out as potential big hitters in the future of the firm

Although David Rubenstein is the very public face of The Carlyle Group, the investment operations of the firm are closely supervised by the two other co-founders, Bill Conway and Dan D’Aniello. As with KKR and several other founder-controlled firms, these three are as active as ever and have no plans to budge from their leadership positions. That said, a less-heralded set of younger executives at Carlyle have been given fairly significant responsibility in the firm, and many believe they are being groomed for further leadership in the global alternatives house.

Carlyle’s powerful executive committee has five people – the three founders plus Daniel Akerson, and Glenn Youngkin. Akerson, in his 60s, is a former telecommunications executive. Youngkin is in his mid-40s, and is described as a “rising star” within Carlyle by a source, partly because of his broad range of experience within the firm. “He spans the world of deals and management,” the source says.

In addition to the executive committee, Youngkin, a Texan and former McKinsey consultant, also chairs the firm’s operating committee. An LP source said Youngkin is “like a cleaner” and remedies any problems with portfolio companies. He was instrumental in helping to establish Carlyle’s European business, and was also on the buyouts team. His skill for starting businesses no doubt convinced his peers to also place him as chairman of the firm’s unique programme overseeing the launch of new funds, with South America and infrastructure currently on the list.

Other stand-outs include more recent transplants. Michael Petrick joined the firm from Morgan Stanley and now heads up the credit alternatives and capital markets group, a role he also held at the investment bank. He, too, is a member of Carlyle’s operating committee.

Goldman Sachs’ loss was Carlyle’s gain in the form of Gregory Summe, who left the investment bank to become vice chairman of the firm’s global buyout practice. Before being part of Goldman Sachs’ principal investment group, Summe was president and chief operating officer of PerkinElmer, a life sciences company.

Of the largest five firms in the PEI 300, Carlyle is one of two that is not already listed or headed for a listing, and so the IPO writing seems to be on the wall, if not imminent. Carlyle’s highly diversified business will be a real attraction for stock investors, but its next generation of leadership will also be closely scrutinised. The diversity of skills shared by Youngkin, Petrick, Summe and the many other senior executives at Carlyle will also go a long way toward convincing investors that this franchise is built to last.