The private equity market is dusting itself down after a challenging 2023. With interest rates stabilising and a well-publicised glut of ‘dry powder,’ there is some optimism that activity will pick up. Nevertheless, curve balls remain. Major elections in the UK and USA loom and conflicts in Ukraine and Gaza rumble on.

Managing the risks whilst exploiting potential opportunities will require astute leadership. So what are the key skills that private equity (PE) portfolio companies (PortCos) are looking for in a Chief Financial Officer (CFO) as they navigate the market this year?

Here our Finance Practice at Eton Bridge Partners tapped into their network and spoke to several established leaders working within the PE space to find out more:

• Hazel Cameron, Consultant to Venture Capital & Private Equity, & Non-Executive Director
• Steve Groves, Chair, NED & Founding Member of PepTalks
• Derek Mapp, Chairman of MITIE and Eurocell, Board Chair of Woodall Homes & Chair of Right Legal
• Tim Farazmand, Co-Founder of PCB Partners, Non-Executive Director with extensive experience of working in the private equity industry

Which skills do you believe will be most valuable for private equity CFOs in 2024 given the current market conditions?

Resilience is a key theme here with the potential for further disruptive events such as elections, wars and economic shocks. The ability of the CFO to respond rapidly and adapt accordingly will be critical. With the economic outlook still somewhat uncertain, the CFO will need to be strategically flexible.

But it’s not all doom and gloom. A ‘growth mindset’ and perseverance will also be crucial as a correction in value expectations leads to greater acquisition opportunities. Time of investment will be instrumental to a successful outcome as growth may be slower to come through given the economic backdrop.

One thing that is always vital is a CFO who is on top of the numbers. A good handle on cashflow is as important as ever and the possibility of falling interest rates towards the end of the year means a shrewd CFO will be considering funding options. “The key focus for me is to always be adequately into the detail of the numbers including cash; looking ahead and producing information that is not only accurate and timely but helps run the business,” says Hazel.

Are the PortCo CFO skills needed for 2024 different to those needed last year?

Given that 2024 could be another potentially challenging year put upon already tired teams, it will be even more crucial that the CFO is able to lead from the front and navigate a path through. “Continuing flat economic conditions for the foreseeable may require a change of strategy and you should be prepared to influence that outcome; being loyal to an out-of-date plan is dangerous,” Derek added.

If, as many hope, 2024 does shape up to be a more stable market, then the CFO mindset will need to shift to more of a growth perspective as opposed to a ‘survival’ mindset.

The growing use of data and technology will continue apace this year; that will bring new risks and potential competitive advantages so CFOs will need to remain on their toes ensuring adequate controls are in place.

Whilst the CFO leads the way, the need for rigour and professionalisation rests right across the finance function. Everyone within the finance team must be capable and consistent in order for a business to be successful.

How is the value-add from an interim CFO different from a permanent CFO?

An interim CFO can focus on the ‘here and now’ and address immediate challenges, supplementing existing skills within a business at moments of stress or opportunity. Steve commented: “Interim CFOs add fresh perspective and greater objectivity as they don’t need to consider long-term relationships as much.” An interim may be freer to take the difficult decisions that can set the company on a firmer footing.

A permanent CFO meanwhile has ‘skin in the game;’ they are invested for the duration and exit outcome with an eye on long-term strategic direction. Generally, an interim is brought on board at the request of the private equity fund and provides a rapidly deployed solution to an immediate need fulfilling a specific role pre- or post-acquisition, guiding through exit or helping to professionalise the process. An interim appointment can also provide an opportunity to progress the position to a permanent one if the fit is good.

Eton Bridge Partners have provided tried and tested interim CFOs, who come with strong references, many of whom we have worked with over several years on numerous assignments. These individuals, typically with diverse, multi-industry backgrounds can drop in and navigate situations very quickly and add immediate value to the business.

If hold times shorten, will a change of skill set be needed?

Different value levers in short-term holds dictate a need for more decisive leadership. If hold times do indeed shorten, there will be more focus on positioning the business for exit and focusing on what is critical to achieve, rather than what is ‘nice to have.’ But a CFO worth their salt will be thinking from day one how to ensure the company is in a form that the acquirer would want; the less explaining and repackaging required at exit the better.

In current market conditions, it could be a lengthening rather than shortening of hold times that poses the bigger challenge as sellers wait for improvements in trading and debt markets. Those seeking short term investments may need to consider sensibly priced, high growth acquisitions that can be absorbed quickly.

How important is private equity experience for the PortCo CFO?

Private equity experience was seen as a key advantage and something that funds look for in a CFO if possible. In a turbulent market, being able to find your feet quickly is crucial and a CFO who comes already equipped with a private equity mindset is able to pivot rapidly from organic to acquisition and seek synergistic benefits with a keen awareness of the necessary timeline.

But Tim says he would consider a CFO without a private equity background; “I am prepared to take a risk on a CFO new to PE as they will often ‘go the extra mile’ to deliver as they often want to make a career from working with PE in the future.” Funds may need to be more openminded to non-PE CFOs if it proves difficult to source a CFO with PE experience, something that could become more likely if the majority of PE experienced CFOs are already in role. One option can be to bring in a non-private equity finance professional at a level below CFO and let them develop their private equity experience with an eye to moving up to CFO at a later date.

In conclusion, the role of a Private Equity Portfolio Company CFO in 2024 demands a diverse skill set, and an ability to navigate through a rapidly evolving financial landscape. As we look ahead, CFOs must embody resilience, adaptability, and a growth mindset to navigate a recovering yet uncertain market. While private equity experience has recently been preferred, there’s a growing openness to hiring CFOs without prior PE exposure enabling the transfer of skills across industries to encourage diversity of thought into businesses.

If you wish to have a discussion regarding the Private Equity landscape, please do get in touch.