Privitas published “Portco IQ Report: Technology 2024” on November 22nd, benchmarking a 15-firm sample of the largest PE-backed exits of technology companies worth over $1 billion during the first three quarters of this year.

According to Privitas’ Portco IQ Index, there were four firms in the sample that performed well enough to achieve a “Grade A”, meaning they were top performers across financial performance, operational efficiency, market positioning, and talent and governance: QGenda (Francisco Partners), Exosens (Groupe HLD), Recorded Future (Insight Partners), and AffiniPay (TA Associates). 

One unifying factor between these four firms is that they are all software companies. Another unifying factor? All four of them scored below the index average on employee satisfaction and executive experience.

On the surface, this may indicate that these sponsors pay less attention to human capital, thus highlighting a potential area of improvement for those firms’ value-creation strategies. Indeed, two of the four Grade A companies – QGenda and Recorded Future – remained founder-led throughout the holding period. 

There is also potential for an inverse correlation here, too. Firms that put immense pressure on human capital, hiring and firing people, may also see lower employee satisfaction scores but higher valuations, hence their “Grade A” distinction. Layoffs in the tech space have been positive for valuations in public markets, for example.

For at least one of the four Grade A companies, AffiniPay, employees complain of “frequent layoffs.” 

According to Glassdoor’s 2024 Workplace Trends report, in 2023, employers’ ratings dropped -4% on average in the 30 days after a layoff, with senior management approval and CEO approval faring the worst (falling -8% and -16 percentage points, respectively). Depressed morale was shown in employers’ ratings even 6 months after a layoff, with ratings for culture and work-life balance continuing to drop by another -3% and -4%, respectively, over the long term (other indicators plateaued after the first 30 days post-layoff). 

Cooper Smith, managing director at Privitas and the author of the report, noted the need for nuance in employee satisfaction at the portco level. “Conventional management theory says happy employees are good for business, and growing businesses lead to happier employees,” he said.

“However, this doesn’t appear to be the case in PE-backed companies where sudden or frequent SG&A [selling, general, and administrative expense] cuts can positively impact financial performance but negatively impact employee morale.”

The report is the second research report from Privitas, a business intelligence firm for private equity operations, using its proprietary platform (the first being our report on sponsor-to-sponsor exits). Subscribers can read the full report here. Future reports will tackle portfolio company benchmarks using our proprietary Portco IQ index, as well as sector-specific and cross-industry trends.