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CFO’s In The World Of Private Equity

CFO’s In The World Of Private Equity

Private Equity has a certain mystique, who are these people, and what do they really do?

We have spoken with candidates that are extremely interested in joining a PE-backed company, and others who are not. Often both groups have a fairly limited understanding of the topic. Unless you have worked in the PE world, it remains an unknown. Although it has its unique elements, there really isn’t anything different in Private Equity from what most of you have experienced.

Below we briefly address the world of private equity and why most of you should always consider a PE-backed company. We also provide some reasons why some of you may not be suited to it.

Why consider it?

There are at least 3 reasons:

  1. It is a chance to test yourself, which can be both challenging and fun
  2. There is often a much more significant equity upside associated with success
  3. If you’ve done well, PE groups tend to hire you again in their other companies

What do they do?

In the simplest form, private equity is all about driving value. Their central purpose is to invest in a company at a “good price” and then, through the efforts of the management team and the PE group’s own people and capital, exit the company later with a favorable return. PE-backed companies tend to run lean, and it is not an environment for those who like the status quo.

Do I fit?

You should consider PE if you have the following attributes:

  1. You can deliver your discipline. Using the CFO role as an example, you need to have all the tools of financial reporting, FP&A, general accounting, IT, and treasury. At times you may need to actually do each of these yourself, you will certainly be expected to deliver solutions in each.
  2. You understand and can articulate the business plan. In PE, it’s all about execution. If you understand the plan objectives, then you can adapt appropriately. If you are used to being given direction and not feeling the need to understand why then this is not for you.
  3. You work well with others, even under duress. PE businesses run on timetables to deliver results, but the world often presents differently than the plan anticipated. This can lead to conflict unless senior management communicates well with PE ownership and can articulate the changes necessary to still meet return objectives.

This may seem daunting, but it is not. It’s no different from what we should be doing in any setting. However, many of us have made our way to leadership roles more through strong political skills than through our business acumen. Steer clear, as this will be uncovered. Many of us are used to large staffs that actually “do”, while we “manage”. Steer clear, you will need to be the real deal.

The bottom line, if you have confidence in your skill set, your ability to adjust as events change, and your communication skills then we strongly endorse considering the PE world. If you’re on the outside looking in, there is no time like the present. You may think that they have their own “go-to CFO’s” waiting in the wings, and some do, but those “go-to’s” had to start somewhere.

The author recently joined as a new partner at Frederick Fox, with a core focus on our C-suite practice. He was previously CFO at 5 public companies, board member and audit committee chairman at another. He has worked in PE-backed environments where many of the elements discussed above were present.