Why PE-Backed Companies Should Obsess Over the CFO Seat
All private equity executives know that the most important aspect of any PE-backed venture is value creation. While all of the members of the C-suite and board play a vital role in actively improving portfolio companies, there is one role that is particularly critical to achieving higher returns: the CFO.
A portfolio company’s CFO takes on the bulk of the responsibility for turning leadership’s investment thesis into real value by evaluating deal viability, managing debt strategies, and transforming day-to-day operations.
When PE firms select the right person for the job, the path to value creation is clear and smooth.
Unfortunately, a mistake in choice often means a long, slow, expensive slide in the wrong direction.
What the Data Says About the Value of a Strong CFO
Recent research has made it clear that strong finance leadership can result in a significant rise in enterprise value.
In fact, numbers from Deloitte show that 50% of CEOs believe that a good CFO can have a significant positive impact — anywhere from 5 to 20% of the value realized on exit. 33% of CEOs believe that this number could be greater than 20%.
Along with enhancing earnings credibility, quality of growth, and investor confidence, the CFO makes decisions that can have a serious impact on exit timing. They’re often able to improve forecast accuracy and due diligence efficiency, allowing for greater agility in pursuing opportunities.
Why obsess over the CFO seat? The answer is simple: depending on the company and sector, the choice of who to place in the position could make millions — even billions — of dollars’ worth of difference.
4 Benefits of an Effective CFO Search
When it comes to private equity ventures, the CFO search shouldn’t be all about having a resume stacked with experience. Instead, it’s about finding the person with the right background and skills to do well in a particular situation. When a CFO is correctly matched to the company, everyone benefits in multiple ways.
1. Better Earnings Quality
Well-suited CFOs understand how to tie earnings forecasts to strategic growth drivers, showing stakeholders a clean path to value. With earnings quality issues no longer a hindrance, buyers can feel more confident, which ultimately commands a higher exit price.
2. Better, Faster Exits
Good CFOs speed up the timeline between acquisition and the sale. Their forecasting abilities mean more plentiful exit options as well as a clean break when it’s time to let go.
3. ROIC & Margin Lift
Good CFOs are able to use pricing discipline and cost-to-serve visibility to better manage (and bring down) capital expenditure. Ultimately, this raises the return on investment and expands profit margins.
4. Credibility With Lenders & the Board
A high-value CFO is able to raise the confidence of all stakeholders with consistent compliance and clear, strategic choices. Everything they do is backed by facts and evidence rather than “hunches” and feelings.
Why Most CFO Selection Processes Need a Shift
Many companies find it a challenge to find a transformational leader to build next-level value creation. That’s often due to the following three factors.
Situation Diagnosis
If you’re still relying on the CFO’s resume, this is often the wrong approach. Instead, you should be looking to match the candidate with the context. Your CFO should be able to demonstrate that they have the right systems, understanding of pricing structure, and capital investment strategy to get the job done (and on time).
Misaligned Archetypes
Not all CFOs are the same. It’s important to understand the current stage of the portfolio company and whether your CFO’s skills and traits are suitable for it. Otherwise, you may be in for a messy transformation. Some CFO archetypes to consider include:
- Builders: Best for projects that are early in the infrastructure building stage or are in the throes of initial fundraising efforts
- Scalers: Best for building streamlined operations or transforming financial planning and analysis
- Integrators: Best for buy-and-build projects and those that need systems consolidation or operating model redesign
- Capital Markets Athletes: Best for companies that need refinancing and leverage recalibration or are looking to improve IPO or sell-side readiness
Considering these archetypes can help you ensure you choose the right person for the job.
Undervaluing Change Leadership
If you’re looking for finance transformation for integration work, it’s important to hire someone who has experience. Look for a CFO who has an excellent track record with change management.
How Cowen Partners Can Help You Find Your Perfect PE CFO
At Cowen Partners, our approach is to focus on outcomes. We start by mapping out the value creation plan and incorporating that into our CFO search. In our first working session, we work to understand capital structure, systems, pricing, working capital, the M&A pipeline, and your timeline. We then match CFOs to the current needs and reality of the company.
We then lean into evidence-based assessment for all candidates. This means conducting structured interviews with your value levers in mind. We don’t wait for you to hire a CFO to understand their plan. Instead, we align our selection process with a 90-day plan tied to the investment thesis so your CFO can hit the ground running on day one. Some of our goals in making the right selection include:
- Plus or minus five percent in forecast accuracy
- Ten to twenty percent cash conversion improvement
- Improving ROIC by fifty to one hundred basis points
- Clean audits that need minimal adjustment
- A complete restoration of lender confidence
Our team puts in the work to ensure that your CFO is well-matched and ready for impact.
Hiring the Right CFO Is the Key to Value Creation
When it comes to private equity, value creation and credibility are the most critical factors. When you don’t put the right person in the CFO seat, these two goals become nearly impossible to achieve. To find your perfect CFO, you must consider not only the resume but also the context. The best CFO in the right situation can ensure a company maximizes value for the best possible return on investment.
Partner with a Top CFO Search Firm in All 50 States
Cowen Partners is a leader in CFO search, trusted by boards and CEOs nationwide to place the top 1% of private equity CFOs. Our senior partner–led process combines speed, precision, and due diligence, making us the choice for companies that need more than resumes—they need proven CFO recruiters who deliver results.
Recognized by Forbes, Fortune, Bloomberg, and The Wall Street Journal, Cowen Partners CFO recruiters connect organizations in every industry with transformative leaders. If you’re ready to start your CFO search and secure a financial executive who can drive strategy and growth, contact us today.
Explore some of our industry-leading resources to see why Cowen Partners is a top CFO search firm in Atlanta, Boston, New York City, Chicago, Seattle, Portland, Denver, Milwaukee, Dallas, Los Angeles, and beyond.
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