Tough Times Yield New Role: Private Equity Partner

In the good old days of private equity, firms would make an acquisition, take care of a few little things like management, market, product and brand, and sell the company at a profit. The credit crunch being what it is, however, most private equity firms are holding on to their properties longer than they had originally intended. Forced to drive out a whole new layer of costs, firms are spending more time evaluating and improving the IT infrastructure of their companies.

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The smartest among these firms are hiring a new kind of partner to manage IT for their acquisitions. With a healthy mix of technology knowledge, business strategy, financial acumen and consulting experience, these former CIOs are playing a critical role in value creation. They are replacing expensive IT consultants, running companies on an interim basis, developing competitive IT strategies and providing a consistent standard of operational excellence across all the properties in a firm’s portfolio.

This is a killer job. It provides the variety of a consulting role without the imperative to hustle for business, it exposes the CIO to a wide range of executives and business models, and it allows him or her to have a positive impact on a range of companies.

But as with most wonderful things, it is not that easy to obtain. Many firms continue to rely on IT consultants and have not yet considered hiring a full-time IT executive. To learn more about this new role and what it takes to obtain it, I spoke with three CIOs-turned-private-equity-partners.

Getting in the Door

After significant experience as an IT executive at major financial services firms, Albert Eng was referred by a contact to Cerberus Capital Management, which hired him as a senior IT due diligence and portfolio operations advisor. Eng’s job was to assess the quality of an investment from an IT perspective and advise on post-acquisition turnaround strategies.

Eng now works as an industry expert for private equity advisory and post-acquisition turnarounds. He notes that getting in the door with a private equity manager can be the hardest part of the process for a CIO. As often happens, it’s all about who you know.

“Your entry into a private equity firm will most likely be through referrals,” he says. “You’ll need to establish relationships with private equity firms or with their portfolio companies. A CIO role in a portfolio company can have a track back to the private equity firm.”

In other words, don’t wait for recruiters to come calling. You need to leverage yourself.

While referrals may get you in the door, you’ll also need the right resume to seal the deal. “Private equity firms with a specific industry investment model will look for a depth of experience in that industry. Generalist firms will look for candidates with multi-industry exposure,” says Eng. “Global delivery experience is also very important, as is operational experience on both the sell and buy sides of IT.”

Yet even with the right resume and referral, the role of private equity IT partner is new enough that interested CIOs may have to sell the value of the position along with their own qualifications.

Craft a Winning Pitch

When marketing your skills to a private equity firm, the most powerful term a potential candidate can utter is “cost reduction.” Given the dismal state of the economy, investors are more interested than ever in driving out costs and unlocking value.

Traditionally, private equity firms hire consultants to cover due diligence, IT strategy, implementation and interim leadership for each portfolio company they hold. Without someone to provide oversight to those consultants, firms incur considerable overhead yet do not benefit from a truly cost-effective IT strategy.

“Firms pay a lot of money to big audit firms who check that the numbers are documented but do not ask how the cost accounting system really runs and where the data comes from,” says former Lucent Technologies CIO Bill Stuckey, now an operational partner at Arsenal Capital Partners. “When firms are strapped for cash, they need to make sure their consultants do deeper dives on the data to find new ways to drive cost out of the business.”

While Stuckey’s role “is to help assure that our portfolio companies all havetechnology strategies and platforms that properly support the current business and its growth plans, and provide education and support within the IT team,” he also makes sure his vendors are delivering only the most valuable information about the technology infrastructure of Arsenal’s portfolio companies.

“I put together our requirements, find outside groups that can perform consistently for a competitive price across the portfolio companies, and direct their efforts,” says Stuckey. “This way we get consistent information and support at a reduced price.”

Know What You Want

Before you work on those referrals and your cost-reduction pitch, you may want to think carefully about some of the differences between your CIO role and this new one.

As CIO of J. Crew and Vitamin Shoppe Industries, Mike Morris had worked for companies that were bought by private equity firms and became interested in the other side of the fence.

“Having worked at companies that were sold to private equity, I found that they did not do a great job focusing on and analyzing the IT part of the business,” says Morris. “I saw this as a niche where I could pull together my IT leadership skills and my MBA and add some value.”

He learned that North Castle Partners was looking for an internal IT operations executive to help with IT strategy and operations improvement. Morris connected with the firm’s focus on entrepreneurial businesses. Morris is now an operating advisor at North Castle, responsible for “advising each of the deal teams on the IT infrastructure of potential acquisitions, working with the deal teams to incorporate necessary IT restructuring activities into a 100-day plan for each acquisition, and making sure we invest the right amount of money in IT as a foundation for growth.”

Unlike his former CIO roles, Morris handles many more aspects of this job himself. “I’m an operating advisor in a boutique firm of 15 people,” he says. “I don’t have a staff to delegate to; I do all of my own research and I put together my own set of due diligence tools.”

For Morris, the entrepreneurial element to his role is extremely gratifying, but he recognizes the cultural shift it may represent for some CIOs, like having to offer advice rather than to issue directives.

“North Castle’s approach is in developing collaborative partnerships,” he says. “We focus on small companies whose C level management I consider to be my customers. I need to listen to them and not say, ‘My way or the highway.’ They are counting on us to help them achieve their dreams.”

Martha Heller is managing director of the IT Leadership Practice at the ZRG, an executive recruiting firm. Reach her at mheller@zrgroup.com.