There is a moment in private equity that is almost never discussed publicly, yet every practitioner knows it: the moment when the chief executive must be replaced. It is the dark, brutal face of the trade. In most of the stories we tell, the CEO is the hero who, backed by the fund, leads the company to new heights. But sometimes the relationship breaks down, trust collapses, and a decision has to be made. And in an LBO, it is not the CEO who decides. It is the fund.
The violence is first of all psychological. For a founder, being ousted from his company means losing far more than a job: it means losing part of himself. It is a narcissistic wound, a wound to one’s identity. I have seen men weep in silence as they left the boardroom, unable to imagine their lives without the company they had shaped. I have seen families torn apart, teams disbanded, projects aborted. It is always an intimate tragedy, even if it unfolds behind closed doors, far from the eyes of employees and the public.
But the situation differs from case to case. In an MBO, when the incumbent management team leads the deal, the fund arrives as a partner: there is a shared history, a shared legitimacy. Replacement is rarer, more delicate, almost sacrilegious. In an MBI, by contrast, when a new manager is parachuted in with the fund’s backing, the relationship is different. From the outset it is asymmetrical: the executive owes his position to the fund. And if he disappoints, he knows he is replaceable. The fund always keeps the upper hand, like a shadow hovering above him. The MBI is often a marriage of convenience — sometimes happy, sometimes cruel.
What makes the LBO so distinctive is this radical asymmetry. The executive — even as a partner, even as a minority shareholder — never holds the ultimate key: the key to the exit. In a listed company, a CEO can hope to last, win over his board, play the stock-market cycles. In a family business, the majority founder chooses when to sell, or to whom to hand over. In an LBO, no. The exit is not his decision but the financial shareholder’s. The timetable is dictated by the fund’s logic, by the LPs’ expectations, by the targeted return, by cycles and opportunities. And the executive, however brilliant, must comply.
It is a silent violence, hidden behind neutral press releases: “a new strategic shareholder is taking over”, “management has decided to pursue new horizons”. But the truth is simple: in an LBO, ultimate power belongs to the financier. He decides when the story ends.
Executives often struggle with this asymmetry. They experience the fund’s arrival as an alliance, and discover at exit that it was not a marriage but a fixed-term contract. Some understand and accept it: they play the game, support the exit, and walk away with new wealth — sometimes going on to complete several successive MBOs. Others feel betrayed, discarded after use.
This is where private equity shows its double face. On one side, a formidable growth accelerator, a demanding partner that transforms companies. On the other, an implacable shareholder that does not flinch when a CEO must be replaced or an exit forced. This blend of support and hardness is the very hallmark of the trade. There is no private equity without the capacity to say “stop” when trust is lost, or when the fund’s cycle dictates the exit.
I do not idealise this violence — this right which, towards the LPs, is in fact an obligation. I have seen it, I have exercised it, and when it comes to removing executives who have fallen short, experience teaches you that one never acts early enough. It leaves scars, resentments, broken friendships and shattered esteem. But I also know it is part of the contract. The managers who succeed in private equity are those who accept it from the start: they know the fund will be a demanding ally, but that it will always keep control over how the story ends.
Herein perhaps lies the ultimate paradox of private equity: by bringing fluidity to the transfer of businesses, it empowers executives and pushes them to outdo themselves — yet it takes away their mastery of time. In an LBO, growth, expansion and transformation belong to management. But the exit — the decisive moment when the story closes — belongs to the financier. And that, no executive can ever forget.