Analysis: Smart succession

Craig Butcher, senior partner and second in command at private equity manager Mid Europa Partners, announced his decision to step down from the firm this week to take up a role as senior advisor to the firm. Butcher, a Kiwi, wants to spend more time with his family in New Zealand.

As notable as Butcher's decision to step back was the firm's reaction. Announced simultaneously, it promoted two of its dealmakers to partner: Kerim Turkmen and Nikolaus Bethlen. Joining Robert Knorr, Zbigniew Rekusz and Matthew Strassberg as partners, this quintet will report to managing partner Thierry Baudon.

The firm now has a pool of senior decision makers beneath the founder ready to assume a senior leadership role if Baudon decides to follow Butcher's lead. Of course, no-one is suggesting Baudon will do anything of the sort for many years to come, but the process shows the firm is thinking long-term, and that can only encourage and reassure LPs. The coherence of its communication to the market evidenced the requisite level of joined-up thinking (and action) that all investors want to see amongst their GPs. 

Secondary advisor Cogent Partners’ co-founder Scott Myers is another high-level executive to announce that they are stepping back. Like Butcher, he is also becoming a senior advisor. Although no direct replacement was named, the firm said it had been increasing the number of mid-level executives who it hopes will grow into the next generation of leadership. Implicit was the message: we’re managing this change proactively.

Other senior figures to leave or step back from the industry in recent weeks include Tom Attwood at ICG. Attwood, the mezzanine investor's chief executive from 2005 to 2010, has retired – as planned – at the age of 60. But again, his departure has been well-managed, handing over the reins to current chief executive Christophe Evain last year before leaving the firm entirely next March. And the announcement of a successful first close for the firm's latest fund, again in tandem with the news of Attwood's retirement, helps to reaffirm the sense of a firm that is planning its future.

Perhaps the best example of a firm whose succession planning has been widely applauded is Apax. The transition from Sir Ronald Cohen's leadership to Martin Halusa's was well-communicated, well-managed and apparently hiccup-free. 

The process isn't always so smooth however, and where that's the case, the repercussions can be severe. In a Coller Capital survey conducted this summer, the majority of the 110 LPs questioned cited succession issues as one of the top three reasons to decline a commitment or re-up with a general partner group.

Messy successions include those at French buyout group PAI Partners – still viewed as an internal coup by some in the industry – and questions have been raised about succession plans at a host of firms that are synonymous with their founders, from Kohlberg Kravis Roberts to WL Ross. George Roberts admitted to Private Equity International  that he thinks about succession “every day”. However, “that's part of being a CEO and doing the right things: you've got to think about who's going to replace you and how it's going to be.”

On recent evidence, it seems that most firms have got the message. In a capital constrained-environment, the fewer uncertainties a GP presents to the LP community, the better. Founders can – and should – step down and step back, but those remaining must show a unity of purpose that results in a timely response which everyone, including your LPs, applauds.