HHL survey: PE funds worry about company targets due to staff shortages / More positions filled on an interim basis

• Only in the IT sector is there a net increase in personnel rather than a reduction
• 69 percent can imagine using interim managers to cover special situations
• Half of those surveyed would consider filling the CFO position with interim managers

"The private equity funds surveyed explicitly stated that they are specifically reducing staff in their investment companies," says Prof Dr Bernhard Schwetzler, Chair of Financial Management and Banking at HHL Leipzig, who led this study. "They are forced to do so due to the poorer economic development. On the other hand, they are also working on building up new jobs with different qualifications. And in turn, it has become very difficult to find the right staff. So difficult that the majority are worried about achieving their own goals."

As a result, 46 percent have stated that they are reducing administrative staff. In contrast, only eight percent are increasing administrative staff. In production, more than a third (35 percent) of the funds stated that they were cutting jobs in their portfolio companies. This contrasts with a 23 percent increase. In sales, almost the same number of funds are cutting (35 percent) as adding (31 percent). Only in IT do more companies intend to hire (19 percent) than cut (15 percent). Bernhard Schwetzler says: "Within the divisions, employees are being made redundant and at the same time new staff with different qualifications are being sought and recruited. However, many companies are currently trying to access the skills they are looking for. However, there are not enough candidates with the required qualifications available."

Majority can imagine using interim staff

In order to manage special situations in particular with sufficient personnel (69 percent) and to provide transitional support at executive and management level (38 percent) as well as in project business (31 percent), HR funds are increasingly relying on interim managers. 27 percent use the 'interim' vehicle to turn the positions into permanent positions at a later date. The most important reasons for using interim staff: another suitable appointment was not possible at short notice, say 69 percent. A third (33 percent) primarily want to acquire specialised knowledge.

Dr Martin Schneider, private equity expert at FTI-Andersch and one of the authors of the study, says: "In practice, we also very often see key personnel leaving the company at short notice. The higher the hierarchical level or the more specific the expertise, the more difficult it is to recruit new staff. This can have a downright paralysing effect on the organisation as a whole if countermeasures are not taken quickly. This is why we are increasingly seeing a very open approach to the topic of interim employees. At the same time, this is becoming an attractive professional model for many employees who would like to live more flexibly than in a permanent position. As in the permanent labour market, however, demand is clearly outstripping the supply of top talent."

50 percent would replace their CFO with an interim manager

Every second company can imagine filling the position of Chief Financial Officer (CFO) on an interim basis. 42 percent say they would consider interim managers, especially for expert roles. Only 23 percent would turn their Chief Operating Officer (COO) into a non-permanent position; in the case of the CEO, the figure is only 15 percent.

"In practice, the Chief Restructuring Officer (CRO) almost always comes from outside, as the expertise to manage and implement a restructuring process is often not available internally. There is also a lack of experience and a certain degree of independence, which is absolutely essential in such situations. CROs are often also management consultants in personal union," says Martin Schneider. "The willingness to buy the CFO on the interim market is remarkable. This can be interpreted in two ways: On the one hand, PE funds do not seem to be sufficiently satisfied with the CFOs in their portfolio companies. Secondly, the market for permanent appointments seems to offer too few high-quality candidates. This makes it all the more surprising that most PE funds recruit primarily within their own network."

This was stated by 85 percent of companies. Two thirds rely on recruitment agencies and recruitment agencies, while 42 percent use management consultancies as a source. "The more frequently and intensively interim managers are deployed, the more intensively funds and their portfolio companies need to professionalise the recruitment, onboarding and follow-up processes," says Martin Schneider. "Non-permanent appointments then offer a good chance of surviving the staff shortages of the coming years. But one thing is clear: competition will tend to increase, especially in Germany. Everyone needs to prepare for this today.

About the study:

The study 'The resilience of the private equity industry: impact of crises on the performance of portfolio companies in 2023' was conducted in collaboration between the management consultancy FTI-Andersch and the Centre for Corporate Transactions and Private Equity (CCTPE) at HHL Leipzig Graduate School of Management.

The responses from a total of 26 PE funds based in the DACH region on the current situation of their portfolio companies were analysed. The focus was on PE funds with active portfolios of more than ten companies (73 percent). The survey was conducted anonymously and with standardised questions according to academic standards. The survey was led by Dr Martin Schneider (Managing Director) of FTI-Andersch and Prof Dr Bernhard Schwetzler, Chair of Financial Management and Banking at HHL Leipzig.

About FTI-Andersch:

FTI-Andersch is a management consultancy that supports its clients in the development and implementation of sustainable future/performance and restructuring concepts. FTI-Andersch actively supports companies that have to deal with operational or financial challenges and change processes - or want to align their business model, organisation and processes for the future at an early stage.

Clients include in particular medium-sized companies and groups that operate internationally. FTI-Andersch is part of the FTI Consulting Group (NYSE: FCN) with more than 8,000 employees worldwide.