When private equity firms invest in a company, it is inevitable that changes will be made. There are several key factors that they look for when investing in a portfolio. Some of those factors may need adjusting because they want to ensure the investment they are making will pay off.
In most cases, a PE firm will ask the company to start operating at a faster pace.
- In typical public companies, they report to the board four times a year.
- In PE-owned companies, they have to report more than once in every quarter.
- They are the main channel through which the PE firm can understand if their investment is safe.
- Through the CFO, the PE firm can see whether or not the company is growing at the pace they want it to grow.
- The CFO can assure them that the bottom line is fine.
- Grasp their urgency
- Stop spending their time on anything that seems trivial to the PE firm
- Focus on the bottom-line results
- Operate at a faster pace
- The CFO must be confident in the data they are giving
- The CFO should be comfortable with technology to better collect and report data
- A desire for becoming game-changers, not just money-makers
- An ability to keep up with the faster pace PE-firms require from their portfolio companies
- A good understanding of technology, systems, and processes
- A sense of purpose, as well as a strong appreciation for urgency
- A strategic outlook on their job
- A wish to concentrate on the long term, by forgoing short-term gains in favor of larger payouts at the end
- Motivation and capability of being a true partner of the CEO
PE-owned companies usually have to give detailed financial reports every month. Every time the PE firm wants to see these reports, they always go to the CFO.
The CFO is always the first stop
The CFO is usually the leading partner to the PE firm.
The PE firm will always want to contact the CFO because:
There is one simple fact that companies receiving PE investments need to know – the PE firm cares about the short term. They want to see that the metrics are exceptional at any given moment. This is because most PE firms are looking to exit in three to seven years.
Due to the financial concerns of the PE company, a CFO needs to understand several important things. They want the CFO to:
If a CFO is used to working at a slower pace, that's usually when the PE firm will want to see improvements. They may want the CFO to lead the finance department faster than their usual pace and challenge their conventional method.
Additionally, the PE firm will want to remain assured that their investment is safe. The CFO needs to be prepared to provide accurate and timely financial reports that adequately portray how the company is fairing at any given moment.
So, what do PE firms want to see in their CFO?
These traits are not something that every CFO has. However, they are necessary for survival and thriving in a PE-owned company.
The CFO needs to dedicate themselves to the company as that's what the PE firm expects. However, they can be confident that this will yield great rewards in return. When the company gets sold to another PE firm or goes public, the CFO can expect large compensation packages. The size of the package often goes in line with how well they performed.
So, how can a CFO achieve all of this? What should they have and do to be the best type of CFO the PE firm might want to have?
The right attributes in a CFO of a PE-owned company
To identify the right traits and attributes the CFOs in PE-owned companies need to have, we looked at what executive recruiters are looking for in potential candidates. We at Consero have found that the following traits are the ones CFOs need to have:
All of these traits are what a CFO needs to possess if they want to be the best CFO for a PE-owned company.
Understandably, not every person is capable of being a person who can have all of these traits. Many professionals simply lack the skills, experience, and personality that goes with these traits. Such people cannot succeed as part of the senior management in PE-owned companies.
That's something that executives are well aware of. Many are prepared to jump at the opportunity of obtaining such talent for their portfolio company. It's thus vital for PE firms to appreciate this fact and be ready to do the same as these individuals are rare.
Whenever they are noticed, it won’t take long for them to get the right offer they will gladly accept. It’s important that this offer is good enough and that it comes from you, not your competitors.