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What Makes a Great Private Equity Associate? A Conversation with Hayley Kim

Hayley Kim, CD&R

As the Wall Street Journal noted, in 2021: “Private-equity firms had a blockbuster year for deal making.”

Indeed, private equity continues to serve as a prime engine of American, if not global, business. The law firm White & Case offered: “The year was exceptionally active for primary buyouts—there was an astonishing US$1.2 trillion worth of these deals in 2021, a clear indication that the PE industry retains the ability to find attractive targets that are not already in the PE ecosystem.”

However, like any industry, the challenge now becomes how to maintain growth? A key capability to drive success will be team members who can blend data analysis with business knowledge and judgment.

The PwC 2022 Private Equity Outlook notes: “The PE sector faces several potential headwinds including value creation, inflation and talent. Buyout multiples are up due to more capital chasing similar assets, and higher multiples have put pressure on the industry to keep generating high returns. Many firms are shifting their focus to value creation in order to improve EBITDA even if future multiples contract. However, value creation is difficult without access to useful data across portfolio companies, leading many PE firms to rethink their data strategy.”

And in 2022, an expertise in technology deals is expected to be of prime importance: “Investors say they expect more tech deals in 2022. Private-equity fund managers have long found software-as-a-service businesses particularly attractive, as these companies offer reliable recurring-revenue models and yield strong and consistent returns. The Covid-19 pandemic drove greater digital adoption across all aspects of life, making technology-enabled businesses all the more alluring to investors and whipping up competition for tech companies,” the WSJ reports.

Often, the first line of offense and defense in this growth effort sits at the associate level. It’s an extremely important role – these are the team members who, by working directly with the primary data, can highlight opportunities or pitfalls before anyone else. These unique judgments can result in helping the team move towards an industry-shaping deal… or avoid a business decision that might not make sense at a particular time.

So what makes a great private equity associate? To find out, we spoke with one. Hayley Kim is an Associate in the Technology & Services vertical at Clayton, Dubilier & Rice, a firm that is well known for its approach blending operating and investment skills.

Some background: Originally from Seoul, South Korea, Kim majored in Statistics and Finance at the University of Pennsylvania’s Wharton School of Business. She has sustained a reputation for excellence on a national and international level as a result of valuable investment insights through creatively overlaying complex financial modeling and statistical analyses on large data sets for prominent financial organizations, including Clayton, Dubilier & Rice and JP Morgan.

Kim offers a unique combination of investment talents, including a keen understanding of both Asian and American business and investment processes, approaches, and goals. Moreover, she has played a critical investment role by overlaying complex financial modeling and statistical analyses on large data sets in a creative manner to evaluate scaled transactions, effectively running complex due diligence processes, leading objective, data-driven analysis, and making significant contributions to a series of investment decisions.

One such transaction: Kim played a leading role in CD&R’s agreement to acquire PwC’s Global Mobility Tax and Immigration Services business, announced in the fourth quarter of 2021.

Kim sat down with Working Capital Review to explain: What makes a great private equity associate.

Working Capital Review: Tell me just a little bit about you. You were born, I believe in South Korea, but you obviously came to the US for university. Was it always your dream to gain a role in private equity?

Hayley Kim: I was born and raised in South Korea and went to an international boarding school there. I’ve always sought for opportunities to get out of my comfort zones and grow. I wanted to pursue a career in the US and interact with a diverse group of people. Also, I wanted to do something related to quantitative analysis, so chose to study Statistics at Wharton. And then obviously applying that statistical knowledge in business settings was interesting to me, because I didn’t want to stay in the books or paper. I wanted my analysis to make an impact in the real business world. And that’s how the combination with Finance came through.

Working Capital Review: Many of the transaction you have been involved in have be valued in the billions.  Can you walk me through roles you play as a private equity associate in executing a deal at that scale?

Hayley Kim: As potential deal opportunities come through, either through proprietary relationships or through 3rd parties, we assess the initial outlook of that opportunity through the information that we have available. We might run a very quick financial model to figure out what a broad range of investment returns look like, and do preliminary market work outside to understand the industry landscape. When the team agrees to move forward, we go through a very in-depth due diligence process, which involves working with a full suite of advisors, including accountants, lawyers, and consultants.

In the due diligence process, associates are responsible for any and all analytical workstreams. Those involve building a financial model and performing data analyses on thousands of different data points coming from both internal and external operations of the business.

The team together reviews analyses and forms an opinion around the opportunity. When the diligence checks out, we bid and, if we win the deal, we go through a financing process. The team will need to resolve key diligence questions coming from investment banks that provide such capital on top of sponsor’s equity.

After that, key to the success of private equity investment comes down to better managing the company once we acquire it. Private equity associates continue to lead various forms of analyses post announcement of the deal, where we work with the management team of the portfolio company to enhance its market position and grow throughout the holding period.

Working Capital Review: What makes a great private equity associate? How do you differentiate yourself from others?  

Hayley Kim: Anyone can look at a number and say, for instance, “it increased by X percent”. What is important is being able to understand what happened in the background that led to and caused that increase.

Often times, many people get too into the weeds when a large volume of information and data is thrown at us. The difficult part of the job is in extracting key information out and coming up with an insight. Great associates, in my opinion, should be able to see through the bushes and connect all the dots. As much as it sounds very easy, forming an investment opinion in the flood of information is challenging. I think great private equity associates should be able to understand the implications of the analysis that they do.

Working Capital Review: It’s imperative to be able to understand the why, W-H-Y and not just the Y the letter Y, the variable. Understanding the “why” not just the “Y.” Could you maybe help put all of what you said into context based on your deal experiences?

Hayley Kim: I worked on the PwC global mobility business acquisition that was announced last October. It was a carve out, which is probably one of the most complex types of deals because it involves separating a segment out of a large parent company. All the functions and financials are weaved into the parent company. It is difficult to understand the standalone business model because the data available is all intertwined. Also, when there are thousands of customers across multiple segments and territories, the analyses become almost three dimensional.

To get the full picture of the business, we should be thorough in dissecting different compartments and summarizing the findings. Take those implications and put them in a perspective of a broader market dynamic, and come to a concrete conclusion on how we should view this investment opportunity now and in the future. And on top of that, overlay those implications on the financial model and figure out the range of investment returns and risks.

Also, it requires a thoughtful exercise of putting everything into formats and frameworks that can be grasped by other professionals without them going into the million rows of data. It helps advisors, senior partners, and management teams to focus on the key issues. Those frameworks can then be replicated in different deals in similar industries.

Working Capital Review: Diversity is becoming an important factor in many industries. What roles do diversity and regional perspective play in private equity industry?

Hayley Kim: Ultimately, diversity brings in refreshing perspectives to the table. For instance, if there’s an international market that the target company serves, understanding differing business practices and risk preference in those markets can be valuable. It could be very different from the US market.

Many LP investors are focused on diversity as well, whether they are pension funds or endowment funds. Also, a growing number of the LP base is coming from outside of the US. Bringing in those non-US capital is important. Another aspect is in portfolio management. Businesses are increasingly focused on recruiting a diverse group of talents into board of directors and leadership roles. As private equity firms manage these businesses, it will also be important to have a diverse group of talent on their side as well.

Working Capital Review: What’s next for you?

Hayley Kim: I really enjoy the work of making these data driven investment decisions and making a positive impact on companies that we acquire. Ultimately, we endeavor to find the right target that squarely fits the investing criteria, and help these companies grow better, improve on their efficiency and become a healthier company to benefit all the stakeholders involved.

There has been a lot of capital invested into the private equity market. With record level of capital to be deployed, individual team members should be able to contribute significantly to making sound investment decisions and building stronger economy. It is an exciting time to be a private equity investor.