The importance of non-executives in private equity funded deals

With the economy entering a state of recovery and the private equity investment markets showing signs of an increase in appetite again for ‘oil sector’ related deals there is renewed demand for sector-focused non-executive directors (NEDs).

Stuart Cochrane, managing director of specialist executive search consultancy Park Brown International, discusses the role of a NED during the investment process.

“Many businesses or individuals which begin seeking private equity funding are unaware that it is often a requirement of the deal to have a NED in place; and, needless to say, many businesses underestimate the importance of sourcing the right person for the job.”

A NED can be hugely beneficial to both parties - from the perspective of the investment company, having a strong NED in place can help mitigate perceived investment risks, particularly if the business in question has a relatively inexperienced team.

The benefits to the company are simple – the right NED will be able to help the team work through any difficulties, potentially provide a network of influential contacts as well as experience and good judgment which has been built up over time.

“A good NED has to be committed and passionate, but at the same time, must remain emotionally detached and is often the one asking the tough questions of the management team.

“NEDs are expected to participate in the strategic decision making processes of the business – they are not just there to say ‘no’ – and must instead challenge the norms and try to anticipate the unexpected.

“More specifically, when a NED has been introduced as part of a funding package, their role often centers on balancing competing interests whether it is between executives and employees or executives and shareholders.”

A recent example of a successful NED placement saw Park Brown International assist Lloyds Development Capital, one of the UK’s leading mid-market private equity houses, with the appointment of a key non-executive director. The appointment formed part of the first major equity investment in Scotland this year as LDC invested £17million in Aberdeen-based Subocean Group.

Aberdeen-based Park Brown International is an executive search and leadership consultancy with offices in Aberdeen, North America and Australia as well as Edinburgh and London in partnership with FWB (Finlayson Wagner Black Ltd).

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