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Opportunity is knocking for CFOs who have the skills that private-equity firms demand.
Kate O'Sullivan, CFO Magazine
September 1, 2006
Private equity is hot, in more ways than one. As deals proliferate, the sector is booming with employment opportunities for CFOs. Walt Williams, an executive recruiter with Battalia Winston International, says that finding finance chiefs for the portfolio companies of private-equity clients has become a substantial portion of his business. "The CFO is so important to these companies," he says, "that often the private-equity firm will recruit a finance chief before any other management team members."
Given their focus on return on investment and their frequent use of leverage, private-equity firms have both respect and extremely high standards for the CFOs they recruit. For those who measure up, a successful turn at one company can launch a lucrative and challenging career in the private-equity world.
Ted Alpert, finance chief at IPS, a maker of pipe cement and plumbing supplies, is a case in point. He has served as a CFO for private equity–backed firms since 1988. Three times, in fact, he has found himself CFO of a company being sold from one private-equity firm to another. He stayed aboard all three times, gaining plenty of experience with such backers. During his tenure at these companies, Alpert worked on recapitalizations, restructuring, seven or eight acquisitions, and four sales.
Once an executive has established a track record with a private-equity firm, the opportunities often mushroom. John Grifonetti was the CFO at Datek Online in 1999 when the private-equity firm TA Associates invested in the online retail brokerage company. He was then promoted to president and chief operating officer before Datek's sale to Ameritrade. Less than a year after Grifonetti finished working on that integration, TA helped recruit him to take on the role of chief operating officer at another portfolio company, Creditex Group.
Hard Work, Hefty Rewards
Working for private-equity owners appeals to executives like Alpert and Grifonetti for a number of reasons. First, Alpert says, interacting with smart owners keeps the job fun and challenging. Second, particularly at midmarket firms, "the distance between you and the ultimate owners — the private-equity group — is very short. You can affect change in the company." Then, of course, there's the money: equity stakes are common and typically run 1 to 2 percent, but can reach 3 percent in some early-stage opportunities. As Alpert says, "There's an ability to really recognize gains from what you do."
While the private-equity world offers the chance to gain much useful experience, viable candidates usually need quite a bit in order to get hired. "Multidisciplined expertise is critical for success," says Fentress Seagroves, transaction services leader in PricewaterhouseCoopers's private-company group. "You need to be able to handle acquisition, integration, and maybe preparation for a public offering, in addition to routine financing and regular financial reporting."
Have You Got What It Takes?
The CFO is frequently seen as the bridge between today's modest reality and tomorrow's ambitious target. "Companies often want a CFO who has experience in a larger company but who can relate to a smaller one," says Williams of Battalia Winston, "because the business might start out at $150 million in revenues but grow to $500 million through acquisitions."
John Wilson, founder of executive recruiting firm J.C. Wilson Associates, is currently searching for CFOs to fill spots at three private equity–backed companies. One recent assignment found him looking for someone with solid accounting skills, experience as a top finance person at a public company, merger-and-acquisition experience, and an understanding of how to run an international operation. "Sometimes the client will also want someone with IPO experience," says Wilson.
But the basics still count for a lot. While she now finds herself at a publicly traded company, Virage Logic CFO Christine Russell has spent plenty of time at companies backed by major Silicon Valley venture-capital firms. She says effective cost-management skills count. The ability to put in place controls — even controls as basic as signature authorities or limited distribution or company credit cards — is very important. "The VCs watch their returns every quarter," she says. Russell also advises would-be private-equity CFOs to be prepared to handle fund-raising challenges as different investors contribute at different stages and as the need for capital changes. "Investors are going to expect you to be creative, not only with equity ideas but also with debt ideas, a working-capital line, and lease ideas," she says.
Succeeding at a portfolio company takes more than technical skills, says John Meeks, a principal at TA Associates. "In our business, the companies usually have less-than-fully formed finance teams," says Meeks. "We're looking for people with great business judgment who can work with entrepreneurs who may not be professional managers, and who can help carry the culture of the company forward."
These jobs aren't for everyone. The scrutiny and pressure can be intense. Unlike at a public company, "your constituency is sitting right there at the board meeting with you," says Russell. "They have their own money and reputations in the deal."
Formal reporting requirements may be less stringent than at public companies — no doubt a big part of the job's allure — Grifonetti says that CFOs should plan on frequent communication with the company's backers. "I'd think nothing of picking up the phone and having two, three, or four conversations a week with our private-equity firm," he says.
Grifonetti adds that a CFO joining such a company has to work to earn the trust of the existing management team. Before joining Creditex, he spent two months getting to know the company's executives.
If all that sounds daunting, it's also true that CFOs who have landed jobs in the private-equity world find it a close-knit community in which one success can be smoothly parlayed into another assignment. "These guys all talk to each other," says Russell. "If you're successful in one portfolio company, they're going to look to place you in another."
And with private-equity fund-raising at record levels, many investors are eager to meet CFOs who have the right stuff. "When I talk to people who are in private equity and explain my background, their eyes light up," says Alpert. "I just fell into a market that's very active."
Kate O'Sullivan is staff writer at CFO.
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