Adding decision-makers who can “add value” is one of the key objectives of most private equity firms in today’s ever more competitive market. Recruitment of senior corporate talent into firms continues unabated, and the basic rule appears to be that the bigger the firm, the more senior the executive it likes to add to its payroll.
The latest example of this trend was last week’s arrival of Kenneth Freeman at LBO giant Kohlberg Kravis Roberts.
Given Quest’s performance under Freeman’s stewardship, it’s not hard to see why he might appeal to a buyout firm. In 1996 Freeman, who has an MBA from Harvard Business School, led the spin-out of what was then a comparatively tiny diagnostic testing, information and services company from technology group Corning Incorporated. At the time, the business was worth a mere $350 million.
Nine years later, Quest had a valuation of more than $9 billion, had shown the second highest return on investment of any S&P 500 company in the five years from 1999 to 2003, and had made the Business Week 50 list two years running. Freeman left his role as chairman last December, seven months after stepping down as CEO, as part of a planned succession process.
It was the final chapter of a long career in healthcare. Prior to his time with Quest, Freeman worked in a range of operational roles in Corning’s various healthcare subsidiaries. He began his career with the group in 1972, working in the financial department for several years before leading a number of divisional turnarounds for the company.
Freeman isn’t the first industrial heavyweight to be added to KKR’s roster. In January, the firm hired former United Business Media chief executive Lord Hollick as a managing director as part of a plan to build a presence in the UK media sector.
Other private equity firm are pursuing similar recruitment strategies. For example, among the competitors that Hollick is likely to run into in the UK is Greg Dyke, the controversial former director general of the BBC, who last year joined European private equity group Apax Partners.
Apax has been recruiting corporate managers for some time and already employs former Energis CEO Mike Grabiner and his brother, former ONdigital CEO Stephen, in its communications team.
The fact that corporate executives continue to sign up with leading LBO groups is evidence that private equity is still considered an attractive career choice, despite the fact that other parts of the investment world, notable the hedge fund sector, are offering highly lucrative career options as well.
And it’s not just the corporate bosses who like the look of private equity. Investment bankers are also continuing to find private equity an attractive prospect: witness last week’s move by Rajiv Ghatalia, Goldman Sachs’ highly regarded former co-head of investment banking in Asia, to Warburg Pincus.
The new recruits entering private equity today are joining at a time of unprecedented investment success for the industry. For as long as the current boom lasts, they are entitled to feeling that they’ve come to the right place. Still, adding value to their new employers over the long-term will be no small challenge – especially if market sentiment takes a turn for the worse any time soon.