Build or Buy in Private Equity CEOs
A few weeks ago I came across a McKinsey Quarterly piece that touched a nerve. Not because it said something I disagreed with, but because it articulated something I have believed for years and rarely seen stated so directly in the context of private equity.
The argument, stripped to its core, was this: private equity has spent decades perfecting how to find and hire the right CEO. It has spent far less time thinking about what happens next. The industry defaults to "buy" when it should be asking whether it could "build."
I want to take that argument further, and in a different direction, because the question of build versus buy is not just about preference or philosophy. In the DACH market, it is increasingly a practical reality. And even in markets where buying is easier, the question of what you do with the CEO after they arrive has consequences that no hiring decision can fully offset.
The cost of replacement that nobody calculates
When a PE-backed CEO is not working out, the default response is to start a search. That search takes time, typically six months to a year from the moment the decision is made to the moment a new person starts. During that window, the organization is not standing still. The incumbent is operating under a cloud. The leadership team is watching for signals. The value creation plan is losing momentum. The sponsor's attention is consumed by the process rather than the business.
None of that cost appears on any invoice. The search fee is visible. The organizational cost of the vacancy is not. And it is consistently larger.
The search fee is visible. The organizational cost of the vacancy is not. And it is consistently larger.
This is not an argument against ever replacing a CEO. Sometimes replacement is the right and only answer. But the calculation that precedes the decision rarely accounts for the full cost of getting it wrong, and that asymmetry consistently biases PE sponsors toward action rather than investment.
When to build
The build case rests on a single question that is more important than any other: does this CEO have the capacity to develop at PE pace?
This is not a question about track record, functional expertise, or even current performance. It is a question about learning agility, specifically how quickly this person can absorb new information, recalibrate their mental model of the situation, and change their behavior in response. It is assessable. It is distinct from intelligence or experience. And it is probably the single best predictor of whether development investment will produce a return.
If the answer is yes, three further conditions determine whether the build case holds.
The gap between what the CEO currently does and what the value creation plan requires must be a development gap, not a fundamental mismatch. A commercially strong CEO who needs to build operational discipline is a development case. A CEO whose working style is fundamentally incompatible with the ownership model is not. The distinction matters because no amount of development closes a fit gap. It can only close a capability gap.
No amount of development closes a fit gap. It can only close a capability gap.
The hold period must have enough runway. Development takes time, even at PE pace. A build investment in the first half of a hold period can produce significant returns by exit. The same investment in the final year is largely wasted. Timing is part of the calculation.
And the CEO themselves must be open to being developed. This sounds obvious and is frequently overlooked. We know that the leaders who fail in their first eighteen months almost always share one characteristic: they do not seek feedback, do not adapt their style, and do not treat the transition as a learning experience. You cannot develop a CEO who has decided they already know what they need to know.
When not to build
The conditions that make the build case strong are also, by inversion, the conditions that make it weak.
When the CEO lacks learning agility, development investment produces frustration rather than growth. When the gap is a fit gap rather than a capability gap, coaching cannot fix what is structurally broken. When the hold period has too little runway, there is not enough time for development to compound into performance. And when the CEO is not open to challenge, the support goes unused.
There is also a category that gets too little attention: the CEO who has the capacity to develop but is not being given the conditions to do so. Poor alignment with the sponsor on the value creation plan. Insufficient clarity on decision rights. A board that oscillates between micromanagement and neglect. A leadership team that is not capable of executing even a good strategy. These are not CEO development problems. They are governance and organizational problems, and solving them requires different interventions than coaching.
The build decision, in other words, requires an honest diagnosis of what is actually broken before deciding how to fix it.
The DACH reality
The build versus buy debate looks different in Austria and Germany than it does in the US or UK, and the difference matters for how sponsors in this market should think about the question.
The external talent pool for PE-backed CEO roles in the DACH region is thinner than in Anglo-American markets. The number of executives with deep PE experience, relevant sector depth, and the cultural and language fit that DACH portfolio companies require is limited. A search that might take 3 months in London or New York can take considerably longer here, with a smaller initial universe and more constraints on the final shortlist.
In that context, the build case is structurally stronger in DACH than the global PE playbook tends to assume. Not because DACH executives are more developed or more coachable, but because the alternative is harder, slower, and more disruptive than the replacement reflex accounts for. When buying takes longer and costs more, the case for investing in what you have becomes proportionally stronger.
There is also a cultural dimension to it. Austrian and German executives entering PE-backed roles typically come from organizational cultures where consensus, deliberation, and institutional loyalty have been valued. The PE context, with its pace, its directness, and its ownership intensity, represents a discontinuity for many of them. That discontinuity is not a reason to replace them. It is a reason to invest in a structured transition that helps them recalibrate, faster than they would on their own.
The Mittelstand tradition of developing leaders from within, giving them broad experience over time and building deep institutional knowledge, is actually good preparation for the build logic. What it does not prepare people for is the pace and the accountability structure of PE ownership. That is a specific gap, and it is a coachable one.
Fit is necessary but not sufficient
In a past piece I wrote about what makes a PE CEO role different (https://www.boardandceoadvisors.com/post/buckle-up-what-pe-ownership-means-for-ceos) and why the fit question matters more than one would think. The CEO who thrives under PE ownership is not just competent. They are suited to a specific ownership model, with a specific pace, a specific stakeholder relationship, and a specific accountability structure.
That argument still holds. But fit is the entry condition, not the whole answer.
The CEOs who thrive in PE-backed companies over a full hold period are almost never people who simply arrived ready. They are people who arrived with the right raw material and were actively developed into the role. The fit gave them the foundation. The development gave them the performance.
What that development actually looks like is worth being concrete about. The most effective support for a new PE CEO addresses three things.
The first weeks and months require a structured approach to understanding the ownership model and the sponsor relationship, not just the business. Many new PE CEOs arrive knowing the company and underestimating the relationship. The sponsor's working style, expectations, and decision-making culture are as important to understand as the P&L, and they take longer to decode without deliberate support.
The stakeholder landscape in a PE-backed company is concentrated but complex. The fund, the management board, the supervisory board or board of directors, the key customers, and the critical employees all have different relationships with the new CEO, and all of them form views quickly. The CEO who maps and manages those relationships proactively in the first months is structurally advantaged over the one who discovers them reactively.
And the personal learning discipline, the CEO's approach to feedback, to adapting their style, to treating the role as a continuing development experience rather than an arrival, is the thing that sustains performance over the full hold period. The best CEOs treat their own development as a strategic asset. The ones who stop learning are usually the ones who get replaced.
What good development support looks like
The question sponsors rarely ask before a replacement decision is: what would it take, in the time a search would consume, to answer whether this CEO can develop into what the situation requires?
A six-month search is six months of organizational disruption, management distraction, and momentum loss. That same six months, invested in structured, high-intensity development support with clear milestones and honest assessment built in, would produce a much more informed answer to the underlying question, and in many cases would produce a better CEO rather than a different one.
This is not coaching in the traditional sense. It is a structured, accelerated program tied directly to the value creation plan, the sponsor relationship, and the specific leadership challenges the situation presents. It involves honest feedback loops, regular stakeholder intelligence, and clear milestones that make the CEO's progress visible to both the CEO and the sponsor.
When it works, it works faster than a search. When it does not, it produces clearer evidence for the replacement decision than six months of quiet concern ever could.
When it works, it works faster than a search. When it does not, it produces clearer evidence for the replacement decision.
The sponsors who are building reputations as development partners, who are known for making CEOs better rather than replacing them faster, are seeing a competitive advantage in the leadership market. The executives who want to take PE-backed roles are increasingly choosing sponsors based on the quality of the working relationship and the seriousness of the development support on offer. That is not a soft consideration. In a tightening market for PE-ready leadership, it is a talent strategy.
The decision before the decision
Before the next search is launched, there is a prior question worth asking honestly: is this a replacement situation, or is it a development situation that has been allowed to become a replacement situation?
Is this a replacement situation, or is it a development situation that has been allowed to become a replacement situation?
The difference is not always obvious, and it requires a quality of assessment and honest conversation that most sponsor-CEO relationships do not naturally produce without external support. But it is the most important question in the talent toolkit of any PE firm that takes value creation seriously.
Fit gets you in the door. Development is what keeps you there, and what keeps the investment on track.
Photo credit: Alessia Cocconi
ABOUT THE AUTHOR
Marion Heil is founder and managing partner of Board+CEO Advisors, a Vienna-based high-end executive search and board advisory boutique. She advises listed companies, family businesses and investors on C-suite, leaders and supervisory board appointments across DACH and EMEA.
