What are differences between single-sponsor searches and CIT/CXO programs?

January 08, 2020

by a searcher from Harvard University - Harvard Business School in Palo Alto, CA, USA

Can anyone detail the fundamental differences between single sponsor searches (e.g. SFA) and CIT/CXO programs (e.g. Alpine). On a surface level -- they seem very similar. You work with a single sponsor, you have a cohort and access to institutional resources, and typically take over as CEO post-acquisition. From the operators/entreprenuers perspective is the difference just in marketing? Or are there some fundamental difference in either program or economics?

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Reply by a searcher
from Northwestern University in Tampa, FL, USA

For context, I went through the recruiting process with Alpine and ultimately decided to go a different route. I'm currently working with another PE firm in an operating role and plan to search at some point. There are major differences between a CIT/CXO model and searching. The first big distinction is the search itself. With Alpine CIT, you wouldn't likely have much of search, at least for your first go around. Many CITs are placed into existing acquisitions right away, though some may be involved in just the final stages of closing an acquisition. It's unlikely that you'll drive any real search process. I have heard of folks who have been more involved in sourcing / evaluating deals after their first exit at Alpine, but even then you're likely to be working with opportunities that have been queued up by Alpine's investment team. With a traditional search or with SFA you are going to be far more responsible for driving the entire search process. In those cases, if you don't identify the companies or engage the brokers, deals aren't going to present themselves to you.

CITs are not guaranteed to step in as a CEO right away -- in fact in most cases they will work under a more experienced CEO-in-Residence that Alpine has put in. There certainly is an opportunity to advance quickly, and depending on the investment cycle, you could have a shot at a CEO role in a few years; also, some CITs do become CEOs at smaller companies right off the bat.

As far as economics go, it's a bit of a trade-off between guaranteed great comp with Alpine and more variability with a much higher upside in a search. You'll make a great post MBA salary and bonus with Alpine, and you'll get some equity on top of that -- but you won't own anywhere close to 25% of the company. In a search you'll certainly have lower cash comp during the search period. Depending on the size of the company you buy, it may be able to support an Alpine-level salary & bonus. And, of course, a 25% equity stake will be a huge part of your ultimate compensation. With a search, I would say your personal performance will have a much bigger impact on your ultimate financial outcome.

Both models can be great for different people, but they are very different. With Alpine you get to be a part of a well-funded, well-oiled investment machine (with great people btw) and you are likely to end up in a great company that has a lot of potential to grow. In my opinion, it could be a great place to get operating experience before doing a search. However, if you really want to have control of your own outcome, and truly feel like a business owner, you're only likely to get that with a search.

Reply by a searcher
from University of Wisconsin in Miami Beach, FL, USA

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