Adam Akbar, Bronzegate's founder and managing partner, shares his view on how investors can stay on top in the race for CFO talent in 2024.

Over the last 12 months, I have witnessed a significant shift in the talent market. In 2022, most of the search projects we executed involved hiring portfolio company CFOs into new investments. This year, however, the majority of our CFO appointments have been replacement exercises.

For anyone steeped in the world of private equity, this should come as no surprise. Interest rates, inflation and the cost of debt are all up; disposable income and consumer spending are down; and supply chain pressures have not gone away. Private equity investing has long since moved away from buying a business, refinancing on preferable terms, and exiting at two times the return. Today, and increasingly due to the macroeconomic environment, private equity investors are acutely focused on driving value creation and navigating headwinds. The result has been not only fewer deals in 2023 but also a higher turnover of CFOs.

More likely to go, more willing to move
Private equity firms are paying more than ever for top talent, and they expect to see results. With a heightened focus on optimising portfolio performance, the margin of error for portfolio company CFOs has narrowed even further.

In 2023, those found lacking in any area – whether it was relationship-building, strategy, team management or leadership – were at risk of being replaced. There were also investors who sought to make a change because their CFOs no longer fitted with the value creation plan, whether that was because the business was now performing behind or, equally, above the plan.

Meanwhile, the best talent grew harder to retain. In previous years, we would have expected many CFOs to remain for the full equity cycle. This year, however, many have found themselves in businesses where the promised investment journey had not materialised. With their equity returns potentially “under water”, CFOs have been much more open to leaving before the cycle is complete.

The combination of “pull” factors for CFOs seeking a better project to be engaged in and the “push” factor for CFOs deemed to be unsuitable for the journey ahead, has driven CFO movement to an all-time high. In short, the private equity CFO market has been consistently busy and more volatile throughout 2023.

Securing the right CFO in a candidate-short market
The hiring boom of 2023 cannot go on forever. As more and more of the best CFOs are headhunted into private equity backed businesses, demand is increasingly outstripping supply. Even if we experience a rise in new deal activity in the run-up to a general election (and a likely Labour victory), the private equity CFO market in 2024 will be short on candidates – and tough for hiring organisations.

Here are four steps investors can take to ensure they come out on top in the race for CFO talent.

1 – Recognise your risk aversion
It is natural to want to minimise risk, especially in economically challenging times. The safe option, however, is not always the best one. In a constrained talent market, PE investors who place overly tight restrictions on their searches could miss out on the candidates most likely to drive value for their business. The trick is to recognise one’s own tendency towards caution and be calculated about which hiring risks are worth taking. As I often say to my clients: the best strategy is to maintain a narrow focus on skills and competencies but an open mind on talent and where to find it.

2 – Partner with an expert
Finding the right CFO requires a comprehensive, meticulous research process and considerable current market knowledge. Without this, you simply will not be able to unearth high-calibre candidates, especially not the talented CFOs who are currently engaged in uninspiring deals. This is why it is so important to partner with firms that have a specialist understanding and track record of helping private equity backed businesses hire CFOs combined with deep personal connections within the European finance leadership community.

3 – Leverage assessment
Great hires are driven by data, not assumptions. Hiring through gut feel or due to a personal connection is often the downfall of C-Suite appointments in private equity. Psychometric and leadership assessments should be part of the hiring process. At Bronzegate, we have created our own competency-based CFO leadership assessment framework which helps with calibrating the hire before the search and then assessing the shortlisted candidates against core competencies. It enables our experts to identify the specific capabilities each business requires of its CFO and to zero in on the select group of candidates best suited for the role. Combined with external specialist psychometrics, it has proven a successful solution.

4 – Act decisively
Make sure you have robust processes in place to ensure you can get the right incentives in front of the right candidate – fast. With the market as it currently is, you simply cannot afford to procrastinate. Good CFOs who become open to opportunities are going to be quickly inundated with offers and if you do not snap them up then somebody else will.

 

 

“With value creation set to remain the focus for the year ahead, private equity investors should be looking for CFOs who are skilled at optimising business performance.”

Adam Akbar, Founder and Managing Partner

Capabilities to prioritise in 2024
With value creation set to remain the focus for the year ahead, private equity investors should be looking for CFOs who are skilled at optimising business performance.
The specific candidate profile will vary depending on the unique challenges and opportunities your business is facing, but there are two broad areas I would highlight as being critical in the current market.

1 – Building relationships
The most effective CFO candidates in PE backed businesses are ‘operational’ rather than ‘head office’ CFOs. These are people who find it easy to build relationships across the organisation as well as with the Board and the banks. It is a vital skill for value creation, as only through effectively partnering with sales, commercial and operational leaders can a CFO really drive performance and manage costs. In addition, CFOs have a primary responsibility of managing Board relationships including the CEO and investors, as well as external advisers and banks. Consequently, CFOs with the natural ability to develop and nurture positive working relationships tend to enjoy more success in their roles.

2 – Data and analytics
With portfolio business performance increasingly under the spotlight, it is critical to have a CFO who can provide data-based answers to any question that comes up. There is nothing more frustrating for PE investors than being unable to get their hands on the information they need. The best CFOs know how to capture and analyse data in the right way, providing their investment partners with big-picture insights as well as giving them access to the minutiae. The inability to deliver the analysis and commercial insights investors demand is often the reason why a CFO does not succeed.

The CFO seat is growing ever more pivotal to investment success.
To drive value creation, you need somebody with a high level of emotional intelligence who can think strategically, commercially and analytically all at the same time. Supply, however, is not keeping up with demand. Investors who want to secure the best candidates in 2024 will need to be willing to “think outside the box” while working with a specialist partner who is fully immersed in the world of private equity CFOs.

Adam Akbar, Managing Partner, specialises in Private Equity CFO and Finance Leader appointments

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