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August 2015
The Perfect Match: What Private Equity Firms Look for in a CFO
By Adam Kohn
Senior Partner
CFOs of private-equity-owned companies find that PE firms often tend to take a very hands-on approach to running the company. They are involved in everything from budgeting to compensation to planning. “It’s sort of like you’re getting married, in a sense. You have to get buy-in on many different levels.” says John Pennett, partner-in-charge of the life sciences and technology groups at EisnerAmper, in a 2014 article in CFO.com.
When selecting a new CFO for an investment, private equity (PE) firms seek a unique blend of criteria that help ensure a successful placement. While previous experience working with PE firms is nearly always a must, in some instances, firms are willing to overlook that exposure if the candidate possesses other relevant experience:
Senior Partner
CFOs of private-equity-owned companies find that PE firms often tend to take a very hands-on approach to running the company. They are involved in everything from budgeting to compensation to planning. “It’s sort of like you’re getting married, in a sense. You have to get buy-in on many different levels.” says John Pennett, partner-in-charge of the life sciences and technology groups at EisnerAmper, in a 2014 article in CFO.com.
When selecting a new CFO for an investment, private equity (PE) firms seek a unique blend of criteria that help ensure a successful placement. While previous experience working with PE firms is nearly always a must, in some instances, firms are willing to overlook that exposure if the candidate possesses other relevant experience:
- Financial Reporting: What is the candidate’s experience in reporting – not only to auditors but to PE firms and other investors? Does he or she possess the wherewithal to meet the high demands of the PE investor? In some cases, CFOs handle more of the operations of the business, leaving reporting to their #2 person. In that case, we need to judge if the level of experience is sufficient.
- Capital: How much interaction do the candidates have with lenders? If they do not currently manage finance relationships, are they aware of outstanding debt? Are they even curious about the capital structure of their company? PE firms want to know if a candidate has not only experience managing covenants, but what level experience the candidate has with highly leveraged environments.
- Operations: In most cases the PE firm seeks an operationally oriented finance executive, who is strong on FP&A, knowledgeable about all aspects of the company and marketplace, has managed a P&L, strategized for growth, and scaled a business. Is this candidate going to play a major role in ultimately creating value for the PE firm? Experience working with PE firms in the past puts a candidate in a better position than most, especially if he or she has helped grow and sell multiple businesses. These candidates understand the demands of PE firms and what it takes to keep them content. They know their job is to bring value, which ultimately they will realize, upon exit.
- Culture: None of the above factors matter if the candidate is not seen as a fit with the sitting executive team and the PE firm. As a CEO of a $500M healthcare service business observed, “I can tell within the first five minutes of an interview if this is someone I can see as my CFO.” Another CEO says: “Sometimes it’s as simple as if the CFO expects to fly first class while the rest of us are in coach; we may not be right for each other.”
