How Can CFOs Successfully Navigate The “PE Triangle?”

From my recent executive search efforts and market conversations with CFOs about market dynamics and trends in my role as Global CFO Practice Lead for SRiCheyenne, an important theme I have been hearing is what I call the importance of navigating the “PE Triangle,” the Investor/CEO/CFO dynamic.

The size of PE funds is outpacing other investor categories, and this has created demand for CFOs who can successfully navigate the PE investment environment, specifically this PE communication triangle.  This environment is quite different from that of venture-backed and publicly listed companies.

To better understand what success looks like for CFOs in these roles, we confidentially interviewed sitting CFOs from the industries where we specialize, technology and content including sports,  all in PE-backed firms of varying size and structures.  Our results were very consistent across the participants regardless of the industry, geography and nature of the PE firm involved.   All referenced the importance of this aspect of their roles.

The key takeaways of how to do this effectively are outlined below.

NO SURPRISES

Every CFO who participated in this conversation cited this as critical and almost all had it at the top of their list.  While “No Surprises” sounds simple, true success here gets to the heart of the matter in terms of best practices in navigating the communication between the CFO, CEO and Investor.  PE investors are metrics focused with their investment thesis and value creation model to follow.  The CFO and CEO need to communicate how the company is tracking relative to this plan, the good and the bad, and be prepared to address and back-up potential course corrections if necessary.  To do this also requires point #2:

ALIGNMENT

The CFO’s messaging must be aligned with the CEO.  Often an investor will have direct contact with the CFO. Actually in every example in our survey, the CFO regularly communicated directly with the PE firm.  When this happens, it is imperative to keep the CEO in the loop, and the story must be unified.

PROACTIVITY

The most effective CFOs look for other metrics and data that will either support or challenge the investors value model.  This is how to rise above providing the numbers and contributing to the value creation of the business-identifying M&A opportunities, pricing model adjustments, potential partners.  Be a step ahead – anticipate the next question and seek out the answer before even having the conversation.   

DATA AND TECHNOLOGY

The CFO role has become more involved in technology in the core function.  This is a data-driven world, and the tools and technology for finance are sophisticated and plentiful.  The CFO needs to sort through the copious amounts of data to determine what is critical and what is fluff and have the judgment to know what is important to understand the business.   One CFO emphasized that an effective CFO “is a detective” and asks, “What do I need to know to really understand the business, and then finds it.”   This data then can be shared with the CEO and investors in a clean and concise way above and beyond the existing KPIs.

COMMUNITY

The best in class PE firms develop a community within their portfolios.  This is a value-add that differentiates these investors.  As a CFO in the portfolio, it is a huge advantage to be part of the community and worth developing these relationships.  Make the effort to research the other investments the firm has made especially those that are in relevant spaces.  Get to know other executives in the portfolio of companies. Attend CFO roundtables and network.  Use the firm’s resources for specialists – the best ones will have preferred service providers at the ready.

Why is this important?  Ultimately if the “PE Triangle” is optimized this will lead to maximum value creation, ensuring the investment thesis is accurate and reflecting the business as it is, not just in theory.  The right adjustments can be made collectively to be in alignment at all points to ensure progress.

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