As a senior finance leader, gearing up for the next exciting phase of your business’s growth with new investment from a private equity (PE) house, your role is about to evolve significantly. Here are six crucial areas to focus on as you navigate this journey:
- Managing different stakeholders: PE investments tend to take a majority stake and take overall control of the business. Founders often retain a minority stake, and as CFO, you’ll play a pivotal role in guiding them through this transition. Plus, with external financing, banks become key stakeholders to manage.
- Structural Changes Post-PE Investment: Post-PE investment, new corporate structures like Holdco/Bidco/Midco, are often introduced for tax and investment purposes. If these entities are integrated into the portfolio company group, it can dramatically reshape the balance sheet and increase the complexity of governance and stakeholder management.
- Increased Board Reporting Demands: CFOs should prepare for a surge in Board reporting demands post-PE investment. You’ll need to provide detailed analyses, especially on revenue, and dedicate more time to pre- and post-Board meeting activities. This can become a significant time constraint for the CFO who also becomes primarily responsible for balancing all the conflicting demands.
- Importance of a Strong Finance Function: A strong finance function is your secret weapon. Focus on building your team and investing in the right talent at the right times. Hiring experienced FP&A professionals will be key to driving strategic decisions and enhancing shareholder value.
- Remuneration Strategies: In PE-backed companies, remuneration often shifts to traditional salary and bonus structures in the short term, with long-term incentives like share options tied to exit events. Crafting these strategies is essential to align interests and motivate your team for the long haul.
- PE Focus on Growth and Value: PE firms are very focused on maximising their investment’s value. Whilst they may provide resources and expertise to support, they also expect strong financial performance and may take decisive actions to achieve their goals if forecasts are consistently missed.
As you embark on this exciting new chapter with PE investment, understanding and adapting to these key areas will be crucial for your success. We’re here to support along the way. Get in touch with Mike Crowson, Director and Head of Private Equity, to find out more.
