Becoming a Private Equity CFO: Adapting your credentials

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One of the most common questions we are asked at Eton Bridge Partners is “how can I get into Private Equity?” Many of our clients and candidates want advice on making the move from being second in line in a large PLC, to the CFO position in a PE-backed business.

In this blog Stephen Tarrant, Associate Partner within Eton Bridge Partners’ Executive Search Finance Practice, speaks to seasoned Chief Financial Officers; John Whitehead and Mark Lewis, to provide some guidance to those looking to take the next step in their career towards becoming a CFO in the PE world.

John Whitehead is a CFO with over 20 years’ experience in delivering major business recoveries and change programmes within global corporations and PE-backed organisations. He has worked with Siemens PLC, BT Group PLC, PE-backed Azzurri Communications and most recently Allied Healthcare, which John sold out of Saga PLC to Aurelius Investments. He is now the CFO of Exemplar Healthcare owned by Agiltas PE.

Mark Lewis is a veteran CFO, with experience across global corporations and PE-backed businesses. His career highlights include leading the spinoff of RAC PLC’s MSS division in 2006, and as CFO selling Valiant Petroleum PLC to Ithaca Energy. Most recently Mark has been the CFO of PE-backed IRIS Software.

Why consider PE? – “A magnetic pull”

JW: A move into Private Equity exerts a magnetic pull for some CFOs. Many are attracted by the promise of a lucrative, challenging and influential role in a dynamic business. But the move is notoriously difficult to make. A significant amount of work is involved, and there are no guarantees of success.

It is important to articulate why you are interested. PE-backed organisations offer the potential for significant financial gain, and this can be tempting, but it needs to be seen in context of the broader reality. Equity aside, the total package can be much lower than in large corporate organisations. You need to look objectively at your personal circumstances and risk tolerance to ascertain if PE is for you. Can you wait for the big windfall? Or would you be better off with a more predictable, regular bonus structure? It’s vital to understand that any event that triggers a windfall can be a long time coming, and there’s no fixed timetable.

What do PE firms look for? – “Being competent is not enough”

JW: “Working in PE means you are ultimately responsible to the investors. Unsurprisingly, investors expect an impressive mix of strengths from their CFO. To get into PE, being a competent Financial Director is not enough. You must be able to demonstrate a track record of delivering hard, clear facts of improvement.”

While no two searches are the same, investors usually look for CFOs who are independent, resourceful individuals who can deliver quickly. Building and fine-tuning a world class finance function is not really seen as a stand out achievement at this level. You must be able to create value, knowing what to cut and what to leave alone, whilst supporting the CEO on improving top line growth. Be prepared for some of your hard-won past successes to be overlooked in favour of genuine shareholder value creation achievements.

You should be an excellent manager of stakeholders, able to work an executive team, and deal with occasional cross loyalties between the CEO and the PE firm. The role is challenging; the detail and pace required from the investors can be relentless.

What are the key differences between being a CFO in a PLC vs a PE backed business? – “The differences are not fundamental”

ML: “There are differences between being a CFO of a PLC and PE business, but they are not fundamental in nature. Ultimately you have investors, or investor representatives, to report to. It is the number and frequency of interactions that varies. This means the logistics are different. In PE, you may meet the investors every four to six weeks, and you may well have contact in-between these board meetings. PE investor relations are more frequent and more intense, but there are also a smaller number of people to deal with.

At a PLC you are meeting a larger number of investors twice a year, or maybe when there is a material acquisition or disposal. There are, of course, some different rules on what you can and cannot share when working in a PLC, so you need a lot more control over what you say to whom. In a PE you are dealing with a relatively limited pool of investors, and you do not have the issues of managing privileged information, but ultimately both types of investors have the same desires. They want to grow the value of the organisation. So you focus your attention on how to grow the business value, and provide relevant information that evidences this for investors. This meets everyone’s needs.”

What can I do to improve my chances? – “Don’t be afraid to be on the second shortlist”

JW: “To get your first PE role you need to have a break. You need an introduction. PE often requires personal references from a common connection; being friends is not enough. PE organisations need to de-risk their appointments. This is the investor’s personal money, so they need a ‘good nod’ from someone who has seen you in action.”

ML: “I came into finance through a slightly unusual route. I started in strategy consulting and qualified with CIMA in my mid-thirties, after moving into a Divisional FD role for a FTSE 250. I’ve also moved across a number of industry sectors; this gives me an unusually broad experience base, but means that on paper I don’t always tick every box in the initial role specification, and therefore don’t always make the first shortlist. But I have often been top on the second shortlist once the brief to the headhunter has been refined, which has led to some interesting opportunities. Having got the introduction, I’ve tried to focus on demonstrating insight into the value drivers in the business and how my experience can help the management team to drive that value.”

To make yourself an attractive proposition, there are a few key strengths to focus on:

Working in a FD/CFO role within a smaller non-PE enterprise will give you the chance to demonstrate and fine-tune the basic skills. You’ll need to show that you can build and run a tight ship, with timely auditing and rapid cash collection at the fore.

It’s also important to gain strategic experience to enhance your commercial and operational track record. Developing a close working relationship with a high profile, respected CEO will strengthen your credibility – it’s a key dynamic in PE and it’s not uncommon for a CFO to stand in for the CEO on occasion.

Another shrewd move is to get involved in a division that has spun off from a PLC – grab opportunities like this if they arise, because they’ll give you the space to hone the quick-to-learn, problem solving strengths that are key elements in a PE position. Of course, you need that all-important break – the ‘in’ that will get you noticed and considered in the first place. This could come from a headhunter, but it’s just as likely to come from a well-positioned friend. Don’t expect introductions to simply materialise. There are plenty of professionals with PE experience on the market and competition is tough. You need to proactively network, and then leverage your network to make introductions happen.

What if I am not the finance lead in my current organisation?

ML: “Moving from a number two position in a large business to a number one role in a smaller company is a legitimate career move. Any Financial Director must be able to successfully deliver many things; the nuts and bolts of finance, the forecasting, planning and strategising, and there is the investor relations, treasury, tax and corporate finance. It is becoming increasingly difficult to gain all this experience within a large corporate, as roles have become narrower in scope. So, the question is, how do you get this experience?

Some bigger firms are good at rotating people through these departments. In large companies, there are also opportunities to get involved in buying and selling businesses. The mechanics of how to deal with investors, how do you deal with advisors, how to manage due diligence, how do you position a business for sale, how do you spot the traps when buying a business; these are all very relevant to CFO roles, and you can get this experience through projects without being the finance leader.

Also, there are often opportunities to raise your hand and get involved in investor relations. You may not do the show piece presentation to the analysts, but you can be in the room, and stay behind for a cup of coffee and ask, “how was the presentation?” “Is there anything that I can clarify?” Some CFOs will give a second in command the chance to present to analysts, or you may be a delegate sent to certain events. You can find these opportunities in a big company, providing you are on top of your day job.“

How do I get past the interview?

Once you land an interview, it’s vital to make a note-perfect impact and cut through the noise of other candidates – including those with PE experience. It’s of prime importance to persuade your interviewers that you’re a hands-on, decision making CFO. This isn’t back office, advisory or analytical terrain; so you need to demonstrate your ability to create a plan, deliver it, and work closely with an executive team and hit the ground running in a fast-paced environment.

JW: “You have to have hard, clear facts of improvement. You need to look back through your corporate life and demonstrate you have been disruptive, that you have made big bets, and you have pulled it off. The first 100 days is not of use… you get about 4 weeks in PE. You need to be happy to put yourself under pressure to make improvements in the first few days. Get a copy of the board packs and management accounts, get an insight before you start, then ask your top 100 questions. Get a feel for what is happening, find out where the issues are.”

If you are ready to make the leap into PE Finance, please get in touch to discuss your experience and your career goals. We’d be delighted to partner with you in your career management and progression.