A playbook for making a critical portfolio-company hire: the CFO

By Kevin O’Neill, Acertitude

While “greed…is good” was the manifesto of Gordon Gekko, the iconic corporate raider from “Wall Street,” “transformation is king” is the proclamation of today’s private equity leaders when driving portfolio company value.

Gone are the days when a sponsor buys a company, makes little or no change in the business strategy and sells for an attractive return.

When it comes to monetizing a business, hiring brilliant leaders is key, with the chief financial officer among the most critical — and most often replaced. With 75 percent of CFOs let go after transactions, a playbook has developed on how to approach this critical hire.

To find the right CFO for your C-suite, begin with the end in mind. Get clear on your investment strategy and you will more effectively achieve your exit.

Ask yourself: “Is it going to be a horizontal or vertical rollup strategy?” “Is it going to be restructuring or transforming an existing business?” and “Is the exit likely to be a public or private transaction?”

Having answered these questions, you’re ready to define the CFO role for your portfolio company. But regardless of your particulars, all CFOs must be able to:

  1. Be the CEO’s strategic right hand.

Many CFOs stay in their lane, feeling more comfortable in the finance box. But for PE-backed companies, CFOs must think more broadly.

They need to be well-rounded business partners, not only financially savvy but also able to support CEOs in defining how to drive growth, allocate resources and increase profitability.

Deputizing for the CEO is important to create leverage, so you’ll want someone with strong charisma and communication skills. Being able to tell the company story internally and externally is critical.

A public exit adds complexity, so direct experience with investors, what it takes to go public, public reporting, and listing rules is invaluable.

With PE firms increasingly using aggressive buy-and-build strategies, it has also become imperative to find CFOs who are skilled at evaluating acquisitions and making investment decisions.

Be on the lookout for CFOs who have experience with acquisitions and disposals. A track record of successful exits is the gold standard.

  1. Convert analysis into action.

The level of analytics and rigor that’s required in a PE environment is greater than that of a typical enterprise. And even in typical enterprises, business leaders are overwhelmed with the volume of information right now.

CFOs need to digest, simplify and transform data into insights to inform decisions and take actions. The leader that’s going to help you execute on your investment strategy must have a track record of doing that.

PE-backed CFOs need real business analytical skills — not just the ability to analyze numbers in financial statements. You want someone who can take a more consultative view of the business and understand the profit drivers, cost structure and key customers from a strategic perspective.

To find the right leader, remember that analysis is nothing without action.

  1. Thrive as cross-functional leaders.

Any role for a PE-backed company demands operationally minded people. You need a CFO who is willing to work closely with other department heads to understand the best allocation of resources to shape the culture, manage data, and drive efficiencies.

Getting out of the finance box and working as collaborative leaders across functions enables CFOs to be taken more seriously and seen as peers who can get involved in discussions beyond debits and credits.

Deciding who should take the financial helm of your portfolio company can be a daunting task. But by starting with the end in mind and recognizing the CFO’s crucial role in the narrow time frame to exit, the right financial leader for your portfolio company will be an obvious decision.

Even Gordon Gekko would approve.

Kevin O’Neill, managing partner and co-founder of Acertitude, is a New York-based strategic adviser to many PE executives and CEOs worldwide. Kevin can be reached at koneill@acertitude.com or +1 401-522-5150.