Managers that Private Equity Firms like: the CFO as the key to success.
We interviewed Giulio Cordano who, thanks to his great experience as a CFO in close contact with the multinational, the property, the management and Private Equity firms, reveals the key success factors for a mission
He has been working as an Interim Manager for many years, also involved in Duke & Kay projects.
Which skills does the CFO need to collaborate with a Private Equity Firm? What are the Fund’s expectations?
Private Equities are financial success-oriented organizations with relatively short-term return (generally three years, rarely more than five years). For this reason, the position of the CFO plays a key role in their strategies, as a partner of change, control and daily management.
For a Private Equity is really NOT easy to find the “right” CFO in the acquired company. First of all, there is an issue of trust and full transparency on figures during the acquisition process. The investor hardly creates value by leaving the situation unchanged; therefore, the PE Firm needs to “smooth out” the inevitable resistances taking place in the ownership changeover. It is rare that the key operational Managers and the general management of the business are changed (very often the old owner or the old management remain in the company with important operational roles). That’s why it is a standard practice to change at least the CFO, as a change leader he makes from interface between old company owners/management and the investment fund.
Among the main skills needed by a CFO to be able to perform profitably with an investment fund, there are above all the so-called “hard” skills. The CFO must have a well-rounded curriculum, gained through years of experience in international environments. That is the knowledge of a language, of national and international taxation, of the reporting and management control system in complex realities (with deep knowledge of forecasting, budgeting and reporting systems as Private Equities are realities that live on data). New information systems (operational and/or financial) are often introduced after the acquisition by a fund and therefore experience gained in the implementation of these systems is always a plus. Management of Finance and of banking partners are obviously to be included in the list of core skills. And we could go on with a long list of necessary technical skills but, what is most important to highlight for our purposes, is that the figure of the CFO who best suits the needs of a fund must have a consolidated “seniority”, a proven track record of diversified experiences in the world of administration, finance and management control.
More difficult to assess are the “soft” skills. Among these, the talent for management a career projects based: the CFO must be aware that, in most cases, he/she is called to play a complex role with a short time-frame, at the end of which there will be a probable new change of ownership (and most likely of the CFO). Personal and psychological skills are fundamental. The CFO is in fact thrown in an extremely tense and complex arena, where there is normally a clear resistance to change and, above all, the fear of the new and of the future, where everything is questioned but where nothing must be broken. In this context only leadership, communication skills, empathic abilities, self-control, and the ability to manage stress can help. Winning the fund and the management/collaborators’ trust of the acquired company is therefore the core skill of a CFO. So, a “good CFO” for this type of project must be able to make himself credible towards all the players involved.
What are the key issues in the post-acquisition integration process? What are the challenges facing the CFO?
As mentioned before, there is the everyday management that the fund often delegates to the local team. Governance and control consequently become very important and the CFO is responsible for guaranteeing the application towards the fund. Essential for this purpose are the continuous communication and the quality of the processes put in place; to anticipate problems and avoid surprises as the primary goal.
But, as said before, the Private Equity Firms live on information, plans and explanations. It becomes of fundamental importance the speed with which the CFO takes over the data, analyzes and evaluates the strengths and weaknesses of the systems in place, makes the necessary corrections. The ability to provide reliable, more than accurate information, is the key for the CFO success and for the fund’s investment profitability. Past experience plays a fundamental role, it is the training ground made in many lived cases, the intuition on how the business model works and the ability to evaluate the data provided by the existing systems that make the difference. The CFO needs to understand the importance, at that time, between giving a quick estimate or postponing information. There is the pressure of deadlines to manage and the thousands of projects of change (organization, information systems, processes and procedures) that inevitably start under the sponsorship of the fund. And he needs to be credible and authoritative in communicating at all levels: management, Private Equity Firm, financial partners.
In this context of strong pressure, another critical area should be highlighted; people must never be forgotten. The managers and in general all the employees that the CFO finds in the organization: these are the real drivers of change and they are the owners of the corporate knowledge. The ability to mitigate their fears, motivate them, involve them, quickly understand the potential and limits of each one of them is perhaps the main challenge of the CFO. That’s what the CFO success depends on, because no one can ever win a war all alone.
Surely the issue that makes this type of challenge more difficult is the cultural change that companies are called to make. The typical transition from a private owned or local company to a structured international company requires a transformation of processes, of the organization and above all of the corporate culture. The CFO is very often among the main architects of driving change and must have the seniority to lead the team towards the new strategic vision of the new ownership.