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The Opportune Times
November 2008 / Edition #2

Talent in the Changing Market

Many of our clients and candidates are trying to assess the impact of the current economy on their organizations, as well as their individual career aspirations. But, while the numbers may look bleak, we at Thorek/Scott and Partners have seen that market shifts, if approached correctly, can result in unparalleled opportunities for career seekers and those searching for new talent. Over our next several editions, we will look at the state of talent in our changing marketplace, addressing topics on Private Equity, Accounting, Finance, Risk Management, Human Capital, and Emerging Markets.

Private Equity: After the Cakewalk

Over the past decade, Thorek/Scott and Partners has witnessed this country's private equity sector grow into a significant and alternative source of capital and investment. Along the way we've supplied our private equity clients with key talent that has engineered that growth. But if you look at the news, the predictions are grim. Pundits and experts are forecasting a significant slowdown of Canada's private equity sector. We've listened to similar dire predictions during past crises and thankfully we've paid them little heed. Headlines are driven by panic, hardly an emotion valued by true investors. Instead, we see a market that while challenging, will present exciting new opportunities in private equity.

Banks have tightened liquidity, making bank debt that much more expensive, and many private equity firms are facing hard questions about costs, bonuses, and whether pending deals can (or should) close. Still, many firms are embracing this crisis as an opportunity to return to value investing. The highly leveraged glut of the past decade saw many private equity firms greatly overpay for investments. Now, credit constraints will help bring down bid prices for target acquisitions and price multiples will become more reasonable. We expect to see firms act more cautiously, taking a greater equity stake in deals (around 20-30% of the buy price), with an eye on refinancing once conditions improve. With less pressure on due diligence timelines, we also expect firms to put more resources into crafting coherent investment strategies. The next two years of private equity will make the last ten years look like a cakewalk. Deals will be vastly more complicated and exit strategies will require extremely careful planning.

Having the right team is going to be the differentiating factor between firms that seize the upside of this economy and those who falter and fail. With layoffs on Wall Street and Bay Street dropping thousands of top financial brains into the available talent pool, the importance of attracting and retaining the right talent is crucial to success. Where a good record in investment banking was once the stepping-stone to private equity, that may no longer be the case. Successful candidates will need to be able to get their hands dirty, managing the companies within a firm's portfolio out of a recession, and be able to uncover new deals amid a volatile market. This demands candidates with strong analytical skills and a fervent intellectual curiosity.

Thorek/Scott and Partners has built a reputation for thoroughly understanding the requirements of our clients and matching them with the talent they need, not simply the talent that is available. Our local knowledge of the sector and our longstanding relationships with clients and candidates in Canadian and global private equity gives us an unparalleled knowledge of where talent lies. No two firms are looking for the same thing. Finding the right match, whether you are a firm or an individual looking to apply your skills, is what will allow you to turn these turbulent times into opportune ones.

Ask the expert
Linda Nugent, Sari Friedman and Aaron Collins, Talent Recruitment Specialists at Thorek/Scott and Partners.
checkmark Ask the Expert
1) How would you describe the health of the private equity industry in Canada?

LN:
Overall, the private equity market has been slowing as a result of the impact of the credit crisis on financing acquisitions and attracting new investment dollars. Banks have steered away from providing leverage financing for acquisitions and have been more concerned with the purchase multiples paid for companies. This is especially true in a downside economic market. Institutional investors have also been hurt by the credit crisis. Their investment appetite has not been as strong in private equity funds worldwide. As an alternative, there is a trend toward investing in distressed funds which focus on private equity investments in distressed companies. This has resulted in growth of a different type of private equity, more so in the US.

2) How have the economic conditions affected career opportunities within firms?

AC:
The firms are not necessarily laying people off, but they have slowed in their hiring initiatives. Most new hires are at the associate level; people with 2-3 years of experience in investment banking, corporate finance, and/or consulting.

3) What are these firms looking for?

SF:
In general, buy side funds look for people who have a long-term investment philosophy. People who are passionate and opinionated are valued, but modesty and discretion is also essential. They like to see a core set of investment banking skills coupled with the ability to think like an investor.

4) Where are most of the current opportunities in private equity?

LN:
In general, most private equity funds have smaller teams with fewer professional investment positions to fill. Pension funds on the other hand, are larger and they often have more positions at all levels. They also don't have to raise money from investors, so in the current market, they are well positioned to invest more money. Apart from the investment positions, private equity firms also look for strategic, operational and financial professionals for their portfolio companies to either enhance or replace existing management teams.

SF: There has also been increasing growth in infrastructure and distressed funds. Infrastructure funds are building ports, highways, hospitals, airports, and provide the equity for public/private partnerships. They are active because there is growing need for development and improvement both globally and locally. Distressed funds are generally counter-cyclical and are very active in a tight credit market.

5) What should someone be looking for in a private equity firm?

AC:
Each firm represents a unique culture. You really have to like the people and be able to envision working very closely with them. It is important to ask a few fundamental questions: Is the firm raising new capital? What is their track record? What is the focus of their investment strategy? Who are the principals of the firm? Am I a fit for their culture? In order to be successful in private equity, you should believe in the direction of the fund.

6) Where can someone go after private equity?

LN:
Often into a senior level role within one of the portfolio companies, such as corporate development, Chief Operating Officer or at a CFO level. After several years of direct involvement in the strategic direction of the investment companies, the transition into the direct management of the investment is often a successful option. Many people also choose to make the move from investor to buying their own business. They direct their skill set in financing and managing a portfolio of successful investments to running their own company. The options are numerous.

7) What value can recruiters add to the market for talent in private equity?

SF:
Private equity firms typically employ or consult individuals with specific industry expertise to assess investment opportunities. The same emphasis should also be placed on hiring its people. A recruiter's core business is human capital; this is our expertise.

Over the years, Thorek/Scott and Partners has become very familiar with the private equity market and more importantly, the individual firms and their leadership. We know the personalities and the culture of the firm.

We have established ourselves as a search firm that delivers top talent. In a market that attracts hundreds of applicants, we are well suited to execute our screening process while matching the experience and cultural needs of our clients. Each client is very unique as are the needs of our candidates. One common filter we use is to assess a candidate's ability to think like an investor.

Additionally, individuals in private equity are closely connected and candidates are cautious when seeking new opportunities. Recruiters create a safe buffer in the market and are able to connect with more people. As private equity firms use recruiters to screen candidates, our candidates use recruiters to screen opportunities.
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