European buyout sponsors changed chief executive in 69% of deals tracked to exit

Start with the count of appointments, because it runs ahead of the turnover rate. One deal in four of the 135 that changed chief executive went round more than once. At the average the memorandum reports, that is about 34 deals and roughly 81 transitions ^[19]. Add the 101 deals that changed once, and the 196 companies produced about 182 chief executive appointments between acquisition and exit ^[20]. Sixty-one of the 196, or 31 percent, reached exit with the chief executive they were bought with ^[18].

The internal bench supplied very little of that. Among companies that changed chief executive, 30 percent promoted from inside, most commonly a divisional managing director or the chief financial officer ^[5]. That sends about 95 of the 135 into the external market ^[21]. Outside hires split evenly between executives who had worked in an investor-backed company before and those who had not ^[6]. That puts roughly 47 companies, about a third of the changers, in the hands of someone who had already run a sponsor-owned business ^[22]. Russell Reynolds puts sector and leadership experience ahead of PE pedigree in its third takeaway ^[23].

Two numbers carry the case for leadership as the main value lever. Top-quintile portfolio company chief executives generate annual shareholder returns approximately 9 percentage points above industry peers ^[9], and general partners attribute more than half of investment returns to portfolio company leadership, rating it their highest lever for value creation ^[10].

The argument that sponsors are re-underwriting the chief executive rests on the environment description more than on the counts. Russell Reynolds writes that cheap financing, easy multiple expansion and relatively short hold periods meant even subpar execution could produce attractive returns for much of the past decade ^[11]. The firm writes that higher interest rates, more volatile financing and uncertain exit markets have since altered the assumptions behind theses developed at the height of the market ^[13]. Investor interviews put the pressure highest in the upper middle market, where rapid growth and transformation can outpace the leadership already in place ^[17].

The memorandum's position is that transition is a defining feature of PE ownership and often not a one-time intervention ^[24]. For a sponsor still holding a company acquired in 2021 at an elevated entry multiple against an ambitious growth plan ^[12], the choice this quarter is when to run the assessment. Next quarter's consequence is a search that starts after the number has been missed. Russell Reynolds's framing is that sponsors need chief executives who can reset priorities and adjust the value creation plan when the original thesis no longer fits the circumstances ^[14].