Here is a statistic that should be on the wall of every operating partner’s office: 73% of CEOs at PE-backed companies are replaced during the investment cycle. In most cases, the replacement is an external hire. In most cases, that replacement happens within two years. And in most cases, it was not planned.
Private equity has built sophisticated frameworks for almost everything: deal structuring, value creation planning, portfolio monitoring, exit preparation. Leadership succession is the outlier. It remains largely reactive, inconsistently owned, and treated as an operational fire rather than a strategic variable. For an industry that prides itself on being methodical, this is a striking gap.
The consequences of that gap are measurable. Leadership transitions in PE-backed businesses are among the most disruptive events a sponsor can navigate. The 100-day clock starts over. Commercial momentum slows. Middle management hedges. And the window for compressing returns (already narrowing as hold periods extend) shortens further.
Hold Periods Have Changed the Maths
For most of the last decade, the private equity model assumed a hold period of four to five years. A CEO brought in at acquisition could reasonably be expected to carry the asset through exit. That assumption no longer holds. Average hold periods across European funds have now stretched beyond seven years, the longest in more than two decades, driven by the interest rate cycle, exit market stasis, and the continuing difficulty of finding compelling buyers at acceptable multiples.
Seven years is a long time to ask any executive to maintain peak performance under sponsor ownership. The incentive structures that work brilliantly at year two begin to lose their motivating force by year five. Personal circumstances change. Market dynamics evolve. The skillset that was right for the growth phase may not be right for the exit phase. These are not failures of character. They are predictable features of human motivation and organisational lifecycle. Treating them as surprises is the mistake.
The data supports this. A recent study published by Harvard Law School’s corporate governance project found that nearly half of PE-backed boards have increased investment in succession planning over the past two years. Yet only 28% say they approach it with genuine proactivity. The majority still default to emergency mode: succession is triggered by a performance crisis, a relationship breakdown, or a surprise departure. By then, significant value has already been lost.
The Ownership Ambiguity Problem
Part of the challenge is structural. Succession planning in a PE-backed business sits in uncomfortable territory between the board, the firm’s talent partner, the investment team, and the portfolio company chair. When responsibility is unclear, it tends to get deferred. Deals get done. Portfolio reviews happen. But the question of who leads this business in eighteen months, and whether the board is ready for that transition, rarely appears on the agenda until it has to.
This is compounded by a selection bias in how sponsors think about executive performance. The CEO who got the business through acquisition due diligence, restructured the cost base, and delivered year-one EBITDA targets is often viewed as unassailable. The harder question, whether the same leader has the profile, the appetite, and the capability for the next phase of ownership, is frequently avoided until the answer becomes obvious through underperformance.
Spencer Stuart’s research on PE succession is instructive here: in most cases where a portfolio CEO is replaced, the replacement is an external hire brought in to improve performance. That is not succession planning. That is crisis management with a positive spin.
What Good Looks Like
Sponsors who manage succession well treat it as part of the value creation plan from the moment of acquisition. The practical difference between reactive and proactive succession is not large in investment terms, but the downstream difference in business performance and exit readiness is significant.
In practice, proactive succession planning involves three things that most sponsors currently do inconsistently.
First, honest talent assessment at entry. Not the diligence-speak assessment that validates the deal thesis, but a genuine view of whether the existing CEO has the profile for the full hold period. If not, the transition timeline needs to be mapped explicitly before the business reaches a crisis point.
Second, an internal successor bench. Building one or two credible internal candidates for the CEO role is a development investment that costs relatively little and pays back disproportionately if an unplanned transition is required. It also signals to the broader leadership team that the business invests in career progression, which is a meaningful retention lever in its own right.
Third, an interim management capability for bridge situations. As hold periods lengthen and leadership needs evolve, the ability to deploy an experienced interim CEO or interim CFO quickly, with real PE portfolio experience, becomes a genuine strategic asset rather than an emergency measure. The best interim executives bring the specific capability a business needs at a particular stage of ownership: a commercial reset, a pre-exit clean-up, or a leadership bridge while a permanent search runs in parallel.
The HMN Capital Perspective
The firms that will navigate the next phase of the exit cycle most effectively are not necessarily those with the best assets. They are those with leadership teams that are matched to the phase of ownership, not just the phase of entry.
Succession is not an event. It is a discipline. It requires the same rigour that goes into deal structuring and strategic planning: a clear view of what each leadership role needs to deliver, over what timeframe, and whether the right person is currently in it.
For European PE sponsors managing portfolios with extended hold periods and tightening exit timelines, that discipline is increasingly the difference between a clean exit and a complicated one.
HMN Capital: Specialist Executive Search & Interim Management for Private Capital.
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