For many private equity funds, the starting point of a search for a CFO for a newly acquired portfolio company can very often have the likely exit in mind.
Investors are understandably usually most comfortable hiring those who have experienced a similar journey (turnaround, growth in a similar sector, a successful PE disposal). In most circumstances, this can in fact lead to too small a pool of talent to ensure securing a CFO who will protect and enhance value for the investor through to exit. Our experience is to recommend casting the net wider to include those without experience of working in a private equity backed business but who share the competencies and traits that contribute to the underlying objective
It can be a common misconception (or complaint) that without any previous experience of successfully leading finance in a sponsor-backed business, the door to similar opportunities is closed; this has been mostly true historically but there has been a large number of ‘non PE’ CFOs proving themselves to be more than capable of delivering what the fund requires in order to add value before exit.
Any PE-backed business is usually run under tight cashflow and capex requirements, so being able to demonstrate experience of operating successfully under similar constraints is essential; those who have only worked in situations where a parent or Group Treasury function is always on hand to provide debt financing would likely present too great a risk in a PE-backed business. Breadth of experience is also hugely important; in a PE deal, the CFO is likely to take responsibility for operations, HR, legal, tax, treasury and many other functions; some divisional finance leaders in large corporates may have become too reliant on Group functions to transition into such a broad role effectively. The ability to create an effective team and delegating responsibility across it will often be essential to the candidate’s ability to deliver across all areas
In searching for those who can successfully transition into a deal, we look for what we term ‘Private Equity DNA’; in other words, those candidates who have the right mix of personal characteristics and experiences to make the transition easily from, say, a divisional role in a larger corporate.
What in particular constitutes the right PE DNA? Firstly, competencies such as an ability to work at pace under pressure and enough poise and gravitas to deal with demanding and data-hungry investors are fundamental. Reporting requirements are often greater in a PE backed business and a successful CFO will be expected to be across the numbers with a meticulous level of detail. Requests will be frequent and bespoke, meaning systems and processes need (with lean resource and investment) to be able to produce insightful analysis. Regardless of background, the right CFO needs to build an effective reporting capability.
Additionally, and for some most importantly, experience of operating autonomously is paramount; being comfortable making critical business decisions independently along with partnering with a CEO to shape strategic direction is essential – so a combination of the granular focus on data and control with the ability to see the bigger picture and draw sensible and action oriented conclusions. Finally, successful CFO candidates must have the emotional intelligence and communication skills to manage stakeholders (who can at times have differing views or agendas) and ensure there are no surprises on the PE journey.
If you harbour a desire to make the move into a PE-backed CFO role, keep these characteristics in mind.