Transitioning from companies that are privately owned and listed to private equity companies is the goal of many CFOs. These forward-thinking professionals are keen to formulate growth plans that span multiple years while also presently strategies aimed at revival.
Navigating this transition, however, can present challenges and difficulties that many CFOs didn’t anticipate. Gary McGaghey is the Group CFO of Williams Lea Tag. The €1.3 billion company is a production services group specialising in end-to-end marketing. Based on his extensive experience and background, Gary McGaghey developed the following four strategies that are designed to address the common challenges experienced by CFOs in this position.
1. Keep Transformation Top of Mind
Because a CFO is primarily focused on spearheading the transformation of a private equity business, key performance indicators must be defined early on. Additionally, metrics need to be robustly managed by developing and implementing relevant strategies.
While the sponsor typically identifies the investment thesis and oversees momentum, the CFO needs to be prepared to calculate the company’s creation of value. Because this involves value creation for the thesis’ revenue and cost — as well as the direction of resources toward that result — the CFO needs to be able to manage a variety of initiatives that support the company’s transformation. These could include driving the outcome, making decisions regarding resource allocations and securing financing.
2. Develop Reliable Facts
Joining a private equity company means the CFO must quickly and efficiently build their knowledge of the company. Typically, this would occur by utilising a robust and expanding fact base. However, many private equity companies don’t have the data available to populate such a resource.
Instead, in order to create opportunities that drive value, Gary McGaghey recommends tapping into digital technologies in order to increase benefits rapidly. By focusing on low-cost tools, such as cloud-based software to manage invoices, a CFO can save time while gathering the type of data that boosts transparency and policy enforcement.
3. Focus on Building Teams
Gary McGaghey acknowledges that both acquiring — and retaining — talent is likely to be the largest single challenge faced by the CFO of a private equity company. While CFOs tend to be strong in the areas of talent acquisition and managing people, the infrastructure of many private equity companies often evolves quickly.
The CFO needs to quickly identify talent that can both work and lead under the pressures and circumstances such a company is likely to face. The nurturing that is required to meet this objective could mean the CFO will need to mine other employment sectors to find talent that could be productive with the private equity company’s finance team.
4. Understand the Complexities of Cash Flow Requirements
While a CFO is typically capable of understanding the cash flow, balance sheet and debt covenants that drive a company, a private equity company is more often fueled by debt. This means that understanding and managing cash flow could pose a particular challenge.
Because a CFO often needs to report cash flow frequently, Gary McGaghey notes it is imperative that a thorough examination and comprehensive examination of the variable and fixed costs of the business is undertaken.
In addition to the greater risks that are afforded by borrowing capital, CFOs typically have less time to devote to their intended results. This, coupled with investor demands, the updates required so other managers are kept up to speed on developments and the fact that many CFOs haven’t yet had the time to develop supportive C-suite relationships, can make the transition demanding. CFOs can manage this transition deftly by utilising the advice given by Gary McGaghey.
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