How to succeed in a private equity investment

The CFO of a private equity backed business attracts a significant amount of investor scrutiny and a recent Deloitte survey found that the CFO role  is the most recruited role in the portfolio.  A finding we agree with based on the number of CFOs we place every year into PE backed companies.  Though the demands facing the PE backed CFO are increasing in number and complexity, there are several key recurring themes that might be helpful to bear in mind:

Key relationship

The finance function and the CFO in particular play a key part in ensuring investors have visibility on business performance.  The data they generate is subject to rigorous examination. With many investment professionals having trained as Chartered Accountants themselves, they are well placed to evaluate the accuracy and relevance of the reporting and to establish if the finance function is supporting the business as it should.

Rigorous financial stewardship

Robust working capital management and accurate cash forecasting is crucial, which means the CFO needs to demonstrate his or her understanding of the intricacies of bank covenants and the implications of poor cash management. With this backdrop, the importance of the team supporting the CFO cannot be overstated and his/her ability to recruit, upskill where necessary and retain a strong and resilient finance function is key.

Incisive MI

The intensity of the requests for data can be overwhelming and the CFO must be able to respond with robust and timely information, ensuring full visibility of the performance of the business to investors. Systems may need to be upgraded where necessary.

Relationship with the CEO

The CFO must develop a strong and open working relationship with the CEO, while deploying the checks and balances needed to retain neutrality.  An effective CFO should complement the CEO and deliver strong commercial support, including knowing when to challenge the business plan and/or strategy. First class soft skills are essential and the ability to communicate diplomatically and effectively can be the difference between success and failure.

Sustained focus on building enterprise value

Beyond the day to day challenges, the CFO must remain focussed on building enterprise value (EV) which is of key interest to all parties, especially the Private Equity firm.  This starts on day one and he/she must endeavour to keep this as the fundamental objective throughout the journey.

Finally, it will come as no surprise that the CFO can expect long hours, frenetic activity and constantly shifting priorities. In addition to the metrics above, they need to be able to call on tenacity, resilience and a sense of urgency, as they seek to satisfy the varying demands of respective stakeholders.

If you would like to have an informal conversation about the skills needed to succeed in a PE backed business, please contact me on 0161 828 3013 or by email