The Emergence of the Key Operating Partner/Managing Owner
By David Ulrich, Executive Vice President | Partner, Wray Executive Search
The Key Operating Partner, or Managing Owner, has always played a critical role for any new Franchisee Group or Partnership necessary to gain approval from the Franchisor. In the past, this role did not necessarily carry the same level of importance, prestige or respect as traditional corporate positions. However, there has been a change in the investment and acquisition strategies of private equity firms over the past couple of years, in part since multiples for buying a whole company have gotten rather steep compared to valuations in the past.
Because of this reality, PE firms have switched their plans to aggressively acquiring larger multi-unit franchisees instead of the franchisor. When deciding to go down this path, though they have the money, the franchisor often requires the hiring of a “Key Operating Partner” to get final approval to complete the deal.
This trend has accelerated significantly, with many of the top 200 franchisee companies being larger than ever before, thus increasing the demand and importance for having a “Key Operating Partner” ready to be approved by the franchisor.
From a personal career path perspective, a Key Operating Partner is one of the positions that allows someone to build substantial net worth after being in this role for a 5-10 year period and participate like an owner in the business, similar to a COO or Brand President. In addition, how many other positions can the COO run the show and also participate in building net worth without having a “political” bulls-eye on their back because they’re making too much money? In the PE world, when people perform, it’s acceptable to be rewarded handsomely.
Unlike traditional searches where you have a corporate employer seeking to hire an employee for a job, there are several key differences when doing a search for a Key Operating Partner. For instance, a candidate will likely need to invest in the partnership and have some “skin in the game,” which could range from 5%-10+% of the company’s value. This “personal” money changes the dynamics of the relationship and search criteria, as well as the type of person that can afford to qualify for this type of role. The main purpose is to ensure that the Key Operating Partner doesn’t abandon ship when things get tough.
Our firm had seen this cycle begin to emerge about five years ago and began to specifically identify Key Operating Partner candidates to be ahead of the curve and be prepared for this new cycle of PE acquisition. If and when the need arises for this unique search, then please contact me or anyone on the Wray Executive Search team at (888) 875-9993.
If you enjoyed this article, please subscribe to Wray Executive Search Executive ConnectionWray Executive Search Executive Connection. Our monthly newsletter includes industry news, executive movements and thought-provoking articles.