Wharton@Work

July 2025 | 

High Stakes, High Reward: Lead in a PE-Backed Firm

High Stakes, High Reward: Lead in a PE-Backed Firm

Private equity has pulled off one of the most significant — and least understood — power shifts in corporate America. Twenty years ago, PE firms backed a few thousand U.S. companies. Today, they own more than 11,500 businesses, employing more than 13 million workers, according to the American Investment Council — more than triple the number of public companies. This isn't just a financial play. It’s a structural overhaul of how companies are owned, led, and measured, and it’s creating new opportunities for executives willing to lead under pressure, deliver results fast, and think like investors.

For executives considering a role in a PE-backed firm, the decision can be career-defining. But it’s not for the faint of heart. Success requires a different kind of leadership — one that blends operational savvy with financial fluency, urgency with discipline, and strategy with investor insight.

“Executives in PE-backed companies don’t just manage businesses — they manage capital structures,” says Bilge Yilmaz, Wharton Private Equity Professor and academic director of Wharton’s Harris Family Alternative Investments Program. “When you’re operating under 5 to 6x leverage, the room for error disappears. You have to think like a CFO even if you’re running a business unit. That means understanding covenants, liquidity constraints, and the discipline required to deliver both operational results and financial compliance.”

From Employee to Owner

When you step into a PE-backed role, you’re not just getting a new title — you’re getting a stake in the outcome. Most executives in these roles receive equity that could become highly valuable if the company performs well and hits its exit target. That alignment is powerful. It creates a shift from employee mindset to ownership mindset — where every dollar spent is weighed against its impact on long-term enterprise value.

Owners operate differently. They prioritize outcomes over activity, make intentional decisions about where to invest time and capital, and understand the difference between “nice to have” and “moves the needle.”

“In a PE-backed company, leaders think through every expenditure in terms of return on investment,” says Yilmaz. “It’s not about cutting costs for the sake of it — it’s about making sure every dollar contributes to value creation.”

This shift doesn’t stem from motivational speeches or stock option brochures. It comes from genuine financial alignment and the daily accountability that defines PE culture.

Cash Is King — and Debt Sets the Rules

Unlike most public companies, PE-backed firms often carry substantial leverage — sometimes 5 to 6 times EBITDA. The logic is simple: by using borrowed money to finance acquisitions, PE firms amplify their return on equity. But for management teams, that leverage comes with pressure.

“When you’re operating with that level of debt, the room for error disappears,” says Yilmaz. “Miss a quarterly forecast, and you’re not just disappointing investors — you might breach a covenant or trigger a credit review.”

This level of financial constraint changes how decisions get made. It’s not just about what’s a good idea — it’s about what drives cash flow, reduces risk, or positions the company for a favorable refinancing. Capital budgeting becomes more rigorous. Vendor terms are negotiated more aggressively. Projects that don’t yield near-term results may be deferred or shelved altogether.

This environment can be jarring for leaders coming from well-capitalized Fortune 500 firms. But it’s also a potent training ground. “Leading in a PE-backed company builds real capital discipline,” Yilmaz says. “Executives who succeed in this environment often emerge with a level of financial acumen that’s hard to match in other settings.”

The Exit Is the Endgame

While public companies play the long game — quarter after quarter of earnings growth — PE-backed companies are built for a finish line: the exit. Whether through a sale, secondary buyout, or IPO, success is ultimately measured by how much value the company creates and how attractively that value can be packaged for the next buyer.

“Private equity professionals often talk about EBITDA as the key to value,” says David Wessels, academic director of Wharton’s The CFO: Becoming a Strategic Partner program. “But seasoned operators know the exit multiple is where the magic happens — or doesn’t. Driving valuation means reframing the business from a turnaround to a platform for growth.”

That requires more than strong execution. It means shaping the company’s strategic narrative, building momentum, and investing in long-term levers that will attract a premium valuation — things like category leadership, differentiated products, scalable go-to-market models, and strategic partnerships.

Wessels elaborates: “The best PE-backed leaders understand that valuation isn’t just about cutting costs. It’s about positioning. A business that looks like it’s on a roll, with tailwinds and a growth story, will command a much higher multiple than one that’s just running lean.”

What It Takes to Thrive

Joining a PE-backed company is not the right move for everyone. The pace is faster. The margin for error is slimmer. And the accountability is relentless. But for executives who are ready to lead with urgency, manage with precision, and think like an investor, it can be a career accelerator.

The compensation upside can be significant. According to Heidrick & Struggles, nearly 60 percent of CEOs in PE-backed firms have equity stakes worth over $1 million if the company exits successfully. But the rewards aren’t just financial: many executives cite the autonomy, impact, and clarity of purpose in PE-backed environments as major draws.

“There’s no bureaucracy, no long chains of command,” says Wessels. “You know what needs to be done, and you’re empowered to do it. But make no mistake — you’re expected to deliver.”

A Growing Leadership Pipeline

With private equity continuing to expand — PitchBook estimates that U.S. PE deal value reached over $1.1 trillion in 2023 — more executives will face this decision in the years ahead. For some, it will be the opportunity of a lifetime. For others, it may prove too intense or too unfamiliar.

That’s why Wharton has developed executive education offerings tailored specifically to the needs of leaders in private equity-backed settings. Programs like Private Equity: Investing and Creating Value, led by Yilmaz, and The CFO: Becoming a Strategic Partner, led by Wessels, help executives build the financial fluency, investor mindset, and leadership agility required to thrive.

“Executives often ask if they’re ready for private equity,” says Yilmaz. “There’s no perfect answer. But if you’re drawn to impact, urgency, and ownership — this is the arena where those qualities are rewarded.”