by: Kay Francoeur
CFOs are truly at the heart of the success of a private equity firm. They straddle functions integral to the firm’s financial stability – providing critical financial oversight and monitoring – as well as its growth, playing a pivotal role in fundraising, deals making, and value creation via operational improvements across portfolio companies.
Unsurprisingly, given their centrality to PE’s success, there is a high and growing demand for CFO roles. There are a few underlying reasons behind this demand, in addition to the general desirability of CFOs due to the multiple critical duties they perform for PE firms and their portfolio companies. For one, PE deal flow is increasing. PE deal flow volume has been steadily rising over the last decade, with a huge 35% jump between 2020 and 2021. Because of CFOs’ important relationship to the deals process, demand for strategically minded portfolio CEOs has skyrocketed alongside this general trend.
A second notable growth driver of CFO roles relates to the vital functions they play post deal in terms of value creation. Today, most value creation within PE firms is driven by operational improvements, including things like optimizing overhead, production, and the firm’s financial structure, and providing capital access support and improvements in capital efficiency. Timelines are short to demonstrate growth, and CEOs need CFOs with strong operational chops who can execute multiple value creation initiatives in parallel.
A good CFO is also a prerequisite for pulling off successful platform deals, or acquisitions. A platform deal is generally the first acquisition a PE firm makes within a given industry – the intent thereafter is to “roll up,” or acquire, other smaller companies in that industry. Platform deals, or “buy-and-build” strategies, are popular tactics employed by PE firms but are tricky to manage well. CFOs bear significant responsibility in performing due diligence and analyzing the financials of potential acquisition targets. But beyond this critical financial oversight, they must also think about other important facets – such as how much runway and white space exist within the sector in which the platform company will make add-on acquisitions – and have a good sense of what the exit story will be from day one.
Given that buy-and-build has never been as popular as it has been in recent years, demand for CFOs skilled in these types of acquisitions is unlikely to ebb anytime soon.
Ready to snag a coveted CFO position and play a pivotal part in creating value for PE firms and portfolio companies? Stay tuned for tomorrow’s briefing on characteristics of ideal CFO candidates and optimizing your LinkedIn to present yourself in the best light for these roles.
Kay Francoeur is a Project Manager at ECA Partners. She can be reached at [email protected]