Private equity lures the C-suite as top execs seek to leave their mark

Departing Orica boss Alberto Calderon: ‘I’m looking forward to this private equity role where I believe I can add value.’ Picture: David Geraghty

Last week Orica chief executive Alberto Calderon announced he would leave the company for the high risk, high reward pastures of private equity. He follows a stream of high-ranking executives from the C-suite of public companies who have headed for the exit to join PE firms or create new ones.

Former CFO of Wesfarmers Terry Bowen is now with Ben Gray’s BGH Capital. Robbie Cooke moved from group CEO of Tatts to run Tyro Payments. David Hornery and Joseph Healy left the senior ranks of NAB to co-found neo business bank Judo and Steve Weston left Barclays to start Volt Bank. Former MYOB chief Tim Reed has co-founded Potentia and former Macquarie Bank and Telstra C-suiter Peter Shore chairs a number of private companies.

And what are the odds that Mark McInnes, moving on from a rock star decade running Solomon Lew’s Premier Group, will pop up in private equity? The list goes on.

Yasser El Ansary, head of the Australian Investment Council, says there is a very noticeable lift in interest in private capital and conventional thinking is being challenged. “If I were a C-suite executive and I had missed out on a post in a public company and came in second or third on a shortlist, I would put my hand up to move into a private capital-backed company. It’s because those opportunities are more significant and might have a more profound impact on my long-term career than perhaps being a CEO of a public company might do.”

Alberto Calderon is off to renovate his house in Victoria’s Mornington Peninsula, now almost a commune of PE players.

“I love working and I don’t plan to retire,” he told The Australian last week.

“I’m looking forward to this private equity role where I believe I can add value from what I’ve learned. I will be like an operating partner in private equity, which allows me to use my learnings in running companies, but without the nine to five and probably all the responsibilities.”

Behind the lure of private equity is a belief that the stars have aligned. In the past, it has been hard for those running companies to get funding without having access to the public market through a listing. Today, money from the big super funds flows to both public and private businesses, and there is plenty of it. Australia is underpenetrated in PE — Square Peg and AirTree are just the beginning.

Then there is the millstone of public company compliance and community expectation for management “responsibilities”, as Calderon describes them. Says El Ansary: “While C-suite executives respect those regulatory frameworks, they do take the focus away from running and transforming businesses. They become much more beholden to quarterly reporting and interaction with market analysts and others that need time and access to these C-suite executives of public companies.”

Recent change in the market is also influencing career decisions. Outside the publicly listed space lies a dynamic business landscape. In less than two decades, technology has leapt forward, open banking is coming and now the chaos of COVID-19 brings its own opportunity. Reed recalls: “When I came back from Silicon Valley in 2003 there was nothing, only big companies … today there is a really vibrant start-up community, you have growth capital, you have PE, venture debt, incubators, the whole ecosystem is far more healthy.”

Reed says there is another very important change for C-suiters looking to move to the private sector: start-ups and challenger brands are now more successful. “The risk profile of the executive used to be ‘there is no use doing that because you can’t challenge large Australian incumbent businesses’,” he says. “But as the pace of technology adoption has picked up, we see you can challenge incumbents. Look at the retail space with Temple & Webster and The Iconic, they are building big businesses and really challenging Myer and David Jones.”

The same is true in banking, with buy now, pay later businesses booming. “These are the businesses that are changing the world,” agrees El Ansary, “so it stands to reason that executives who feel that they can make a significant contribution for another five or 10 years before they want a change, would be really incentivised to be a part of that.” El Ansary believes this trend will only accelerate. “There will be more and more opportunity for talented executives with deep vertical expertise in niche areas of the market to bring those skills into unlisted businesses. To be an entrepreneur on your own terms is a whole other opportunity set for talented executives.”

Depending on the size of a public company, there may be 10 executives in senior management roles. An obvious point is that there is only one chief. “When you stand back and have a look at it,” says Reed, “maybe it is because you missed out on the next promotion and you think, ‘I’ve got years left in my working career. I’ve perhaps built a level of security that means I can do something that has a different risk profile’ — then I think these endeavours become pretty attractive.”

Yet another attraction for executives is the offer of the skilled advice that can come with a private capital provider. Tim Reed says that often they understand the business and opportunity at a level and depth which is beyond public investors and public boards, and is driven by long-term thinking. “We have seen this with family businesses in Australia like Visy, with long-term patient capital in what they saw as opportunities.”

Reed chairs the Business Council of Australia and is on the board of Transurban, but most days he is with the CEOs of each of his PE firm Potentia’s portfolio companies. “Developing and nurturing the next generation of tech CEOs in Australia is my role,” he says.

“We have five software companies in our portfolio so it is very much leveraging what I did for the last 20 years.”

Then, of course, there is the money. High-achieving leadership executives can often feel unrewarded for their input, devoid of any work-life balance, and this is not a new phenomenon. In the 1980s, Elders IXL chief executive John Elliott spent years building the public company from Melbourne, while in Perth rival Robert Holmes a Court’s private wealth soared. It led Elliott to mount a massively leveraged private bid for Elders. Unfortunately, that was just before the 1987 crash.

There is certainly more risk, but today if an executive gets it right a role in private equity can deliver multiples of a C-suite compensation from a top listed business. “In effect you are aligning your interests in a very purist way with the interests of other shareholders in the business,” says El Ansary. “There is no incentive to deliver short-term sugar hits to the market and rely on those peaks in performance to drive your compensation. Long-term growth and long-term acceleration in value of the business is what private capital investors are looking for.”