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PE Firms Should Actively Plan for Portfolio Company CEO Succession

By Ali Angier and Michael Dickstein
June 2024

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At a glance

  • More than half of the PE-owned software companies we studied had a CEO transition during their hold period; 25% of those had two or more CEO changes.
  • Whatever assumption there may be about who’s currently in the CEO role, it’s important to at least prepare for the possibility of a CEO change.
  • The CEOs who succeed in their first year are those that connect quickly with their executive teams, build momentum through early moves, generate impact among all stakeholders, and evolve their own leadership effectiveness.

Over the last decade, private equity firms have dramatically increased their investments in the software sector, attracted by the companies' potential for revenue growth with high gross margins. In our experience, the most successful investors emphasize active ownership, which at times can lead to bringing in new leadership.

But just how common is a CEO change for PE-backed software firms? To answer this question, we analyzed the CEO changes during the hold periods of more than 50 PE-sponsored B2B software companies.1 Our research found that more than half (54%) of the companies we examined had at least one new CEO between acquisition and exit. Further, of those companies that had a CEO transition, 25% replaced the CEO at least one more time during the investment period.

Below we take a deeper look at what this means for private equity firms, and, in particular, four key themes as they assess companies for potential investment and consider how to improve returns of portfolio companies.

1 All the companies we reviewed have annual revenue of $100 million or more.


The data is clear: Whether you originally intended to or not, it is quite likely your portfolio company will be replacing its CEO during your hold period. Half of the companies we reviewed had a new CEO within a year; 18% had a CEO change within three months. Of the companies with a founder in the role, 46% left before the end of the hold period. So whatever assumptions there may be about who’s currently in the CEO role, it’s important to at least prepare for the possibility of a CEO change. Failure to conduct sufficient due diligence on a target company’s leadership team is one of the most common pre-deal pitfalls, and that diligence needs to start with the CEO role.

Our recommendations:

  • Formalize a methodology and process to assess the current CEO’s ability to execute the value creation plan
  • Evaluate the CEO against top available talent from the space. How well does this person stack up against industry peers?
  • Begin succession planning immediately — even if you are not actively planning for change

Of those companies that made a change in CEO, one in four ended up having at least one more CEO change during the hold period. While not exceedingly common, it’s regular enough to point to the perils of making a CEO change, and the importance of getting it right when you do. Even if there aren’t immediate plans to replace the CEO in the first year, our findings show that it could happen later: half of CEO transitions happened after the second year, and nearly 30% after three years. Ongoing succession planning is a must to ensure being ready for any scenario, and regular assessment of team performance and needs can ensure that any issues are addressed quickly.

Our recommendations:

  • Evaluate your leadership’s ability to execute the value creation plan going forward; assess skills to determine whether they can lead through the next stage of growth
  • Review your internal bench to know what potential candidates may be available, while ensuring you have a roster of strong external possibilities

A strong, programmatic approach to your human capital plan can maximize a portfolio company’s performance. In particular, providing coaching and other support for the CEO currently in place can help in leadership development in the private equity context, and potentially help decrease the odds of a costly CEO transition. The CEOs who succeed in their first year are those that connect quickly with their executive teams, build momentum through early moves, generate impact among all stakeholders, and evolve their own leadership effectiveness.

Our recommendations:

  • Ensure you are giving your CEO access to the support and coaching they need to meet their potential
  • As part of ongoing CEO succession planning, ensure that you are developing and coaching the next generation of your company’s leaders

Overall, 61% of the CEOs in our study were first-time CEOs in either public or private companies. Only one-third of CEOs entered the role with past experience as a private equity CEO. While many of our private equity clients strongly prefer portfolio CEOs who have past CEO experience (and especially in a PE environment), the high levels of first-time CEOs and those with no PE background point to the relative scarcity of available candidates with a “perfect” background. We encourage clients to expand the pool of candidates, with a rigorous assessment of candidates for their ability to operate in a high-octane environment, including referencing.

Our recommendations:

  • Consider the past experience of potential CEOs at best-in-class large enterprise tech players; these are breeding grounds for many of the software world’s future CEOs
  • Through references and interviews, learn about how a potential candidate enacted change in a short period of time
  • Learn about how this individual evaluates talent and determines when to pursue new talent
  • Analyze the leader’s exposure to the board and to other experiences and attributes that would prepare them for work in a PE setting

• • •


Overall, the data underscores the importance of a human capital and talent investment thesis, and in linking the assessment and development of talent with the change agenda, the ongoing talent agenda and a programmatic approach. By asking and answering the right questions, PE firms can better ensure they have a leader in place who can drive value and push the company toward a successful exit.

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© 2024 Spencer Stuart