CFO is one of the earliest moves made by a PE firm upon adding a company to its portfolio. PE investors want to track the Investee Company’s financial situation as soon as they are invested. While the acquired portfolio company may have solid financial systems and reporting, the PE firm’s first priority will be to upgrade the financial structure and transparency by adding a new CFO.
PE investors prefer CFOs who have worked in both large and small corporates. The large corporate experience provides an understanding of sophisticated corporate systems and the experience in a small company helps to test and enhance the CFO’s resourcefulness and ability to deliver when removed from the expansive support systems of a large corporate setting.
Another valuable duality for the portfolio company’s CFO is his experience in working in both public and private companies. From the public company experience, among other things, executives can gain a strong financial reporting capability. While not all PE portfolio companies are obligated to public reporting, PE investors crave financial data that is equally timely, accurate, and insightful. Executives with experience with sophisticated public company reporting systems tend to be best equipped to plan, build, and manage an environment that will provide that financial transparency to the PE investors. A portfolio company CFO should be excellent in processes, be financially disciplined and focused.
On the private company side, the experience of working with a highly leveraged environment helps build a clear understanding of the rigors and demands of working with private equity investors. Comfortable working with limited resources, the CFO needs huge persistence to reliably generate financial accuracy and transparency. The unique analytical dashboard utilized by PE, highlighting leverage ratios, margins and cash flow, must be second nature to the CFO. Banking relationships are also critical, with banks today demanding much more detailed information than was the case a decade ago. The portfolio company CFO must be able to convincingly demonstrate both goals and progress to the banks, ensuring that banking relationships are nurtured.
Demonstrated competencies should include M&A expertise which can be comprehensive i.e. from sourcing right through integration. The CFO should be proactive, hands-on, detail-oriented and be willing and able to function despite limited resources. Portfolio Company CFOs will often find themselves needing to upgrade the financial team as well as the financial systems. This requires a leader who can identify, attract, and retain talent, while also fostering talent development.
In the PE environment, the CFO must be able to work effectively amid the sometimes conflicting priorities and time horizons of the multiple constituent groups. These include the banks, the private equity investors themselves, the management team, and perhaps a company founder or founding family. It is not unusual for the PE investors and founders/ CEO to have far different agendas. Yet the CFO must possess the diplomacy and communication skills to work alongside all team members and make the business a Top Notch productive operating model and bring the CEO, all stakeholders and board members into alignment with the new operating plan.
About the author:
If there’s a CFO who knows how to stay ahead of growing challenges and demands, it is Vikas. A qualified Charted Accountant from the Institute of Charted Accountants of India and Cost Accountant from ICWAI, he has over 18 years experience in finance, business planning and strategy and has worked extensively with start-up ventures, focussing on their turnaround and profitability enhancement. He has worked extensively on Debt and private equity funding and Mergers and acquisition opportunities. He has a keen sense of business and in depth knowledge of all area’s of hotel operations. He also heads the Information technology strategy for the group as well as all Legal and compliance initiatives.
Vikas’s strength lies in financial planning and business strategy along with fund raising, evaluating acquisition opportunities, implementing robust financial systems and controls and optimizing stakeholder value. His networking strengths keep him in touch with new strategies and solutions and his passion for tennis and cricket helps him keep his eyes on the ball.
Vikas’s previous assignments have seen him work at Tata Tea, Thomas Cook and Marico wherein he has been Heading Finance for the last 8 years.