Appointing a CFO who can successfully manage the challenges of working for a Private Equity backed business is never easy. Tom Guy, Bronzegate's Partner, explores when it is appropriate to focus on skills rather than sector experience to identify and secure the right person for private equity portfolio businesses.

The challenging Private Equity CFO market

Finding an exceptional private equity CFO for your asset has never been easy – and recent trends mean it has become more challenging than ever.

75% of PE CFOs we surveyed in 2023 told us they were looking to move roles. The key reasons given were ‘feeling financially undervalued’ and ‘being in a business that is not performing according to expectations’. Unsurprisingly, this was matched by unusually high levels of movement in the PE CFO talent market throughout the year.

This creates an issue for any private equity firm seeking a new portfolio CFO in 2024: many high-quality individuals will have only recently moved to new opportunities, meaning it will be much more challenging to entice them away. Investors may therefore need to consider alternative strategies to identify and secure the right person for their portfolio business.

Broadening the talent pool
Traditionally, many hiring businesses have restricted their shortlists to candidates with sector experience. On the face of it, this makes sense. Private Equity Portfolio CFOs (PE CFOs) that are already equipped with sector knowledge should be able to hit the ground running and should find it easier to earn the confidence of their team members and peers.

However, industry knowledge is not the only – or even the most important – criterion when selecting a new CFO. In many cases, there will be highly suitable candidates working in other industries, whose skills, experience and familiarity with your business model supersede their lack of sector expertise.

To be clear: companies that search beyond their sector are not compromising on quality or making do. Quite the opposite. By broadening the talent pool, they are increasing their chances of finding the candidate who will have the greatest impact on their business. That person may well be a CFO currently working within the sector. But, equally, it may not.

“Companies that search beyond their sector are not compromising on quality or making do. Quite the opposite.”

Tom Guy, Bronzegate Partner

Narrowing in on the best-qualified candidates
At Bronzegate, we have created our own competency-based CFO Leadership Assessment framework, which we use as an integral part of the hiring process. It helps our experts to identify the technical and leadership skills a business requires of its CFO and to zero in on those candidates who provide the best match. By making assessment an integral part of the hiring process, we are able to unearth the right people for a given CFO role from across a variety of sectors.

Here are some of the key questions businesses should consider when assessing potential CFO candidates, all of which arguably carry more weight than the issue of sector experience.

  • Does the CFO candidate have private equity experience?
    Private equity backed businesses present CFOs with a unique set of challenges, whether it’s finding ways to free up cash to drive the company’s growth strategy or managing relations between investors, the CEO and the board. For this reason, PE experience will be a must-have for most PE roles.
  • Are they well-acquainted with your business model?
    While a CFO does not need sector knowledge to be effective, they do need a good understanding of the organisation’s business model. As part of our CFO Leadership Assessment, we evaluate whether individuals have the right experience to meet current and anticipated business challenges based on previous exposure or confidence levels facing similar situations.
  • Have they worked in organisations of similar size and scale?
    If the finance team they are currently leading is very different in size from yours, then they may struggle to make the transition. Those coming from smaller-scale businesses may not have the strategic mindset and leadership credentials to succeed in larger organisations. Those coming from larger organisations may lack experience of a hands-on approach and could find it difficult to secure compensation that matches their expectations.
  • Do they have the right technical and leadership skills for your business? This is arguably the most critical question of all. The ideal CFO candidate will be one whose skills and competencies align with current and future business needs. For example, if your company is entering a period of significant change, you need a CFO who excels at managing transformation. Alternatively, if you are nearing the end of the investment cycle, a talent for creating exit opportunities will be a top priority.

CFOs are proven to succeed across sectors
If you still need convincing about the suitability of PE CFO candidates from outside your sector, we recommend asking CFOs themselves. One in three respondents (31%) to a 2023 Bronzegate poll reported that they had worked in four or more different industries. We also know from working with private equity finance leaders that they do not perceive their skills to be sector-specific. On the contrary, many of them relish the opportunity to apply their knowledge and experience in different business environments because they see private equity experience as a skill in its own right, which they can successfully transfer across assets.

Case study: Portfolio CFO placed at Affinitas Education for Oakley Capital

Background
As part of their buy-and-build business growth strategy, Oakley Capital were seeking a new CFO for Affinitas, a global K12 schools group headquartered in the UK.

Strategy
Using our Bronzegate CFO Assessment, we identified that Oakley Capital needed a CFO with a special set of competencies – not just big-business PE experience but also the ability to play a hands-on role in building a centralised finance function. Very few CFOs in the education sector met the brief, either because they were working for smaller, single-country assets or because they were bound by non-compete clauses. We therefore chose to extend our search outside the sector, focusing on candidates who had buy-and-build experience or had managed multiple international acquisitions.

Results
Our CFO-X European network yielded a shortlist of exceptional CFOs, with the successful candidate coming from a multisite service-driven business outside the education sector.

Securing the best CFO for your portfolio business
As the CFO seat grows increasingly pivotal to investment success, the business of finding and hiring high-calibre talent becomes ever more challenging. Investors looking for CFOs who can drive value creation for their business will need to think outside the box – or, rather, outside the industry. Broaden your search to include other organisations that match yours for size, scale and business model, and use rigorous assessments to identify candidates with the right technical and leadership skills, and you will significantly increase your chances of securing the best CFO for your business.

Tom Guy, Partner, specialises in Private Equity CFO and Finance Leader appointments

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