Building for the Exit: How Talent Partners Can Place CFOs Who Drive Value

As a Talent Partner in private equity, your role extends beyond filling C-suite positions – you are a strategic architect of value creation. Nowhere is this more evident than in CFO hiring.

The right CFO doesn’t just oversee the numbers; they shape the exit strategy. In a market where hold periods are extending and valuation discipline is tighter than ever, placing the right CFO early in the investment lifecycle can be the difference between a lucrative exit and a missed opportunity.

Market pressures demand strategic CFO leadership

The private equity landscape has evolved. U.S. PE deal value reached $565 billion in early 2024, a 25% increase year over year, signaling an active, but competitive market. Yet, hold periods are stretching beyond the traditional 3-5 years, with firms prioritizing operational improvements over quick flips. For Talent Partners, this means CFO hiring decisions must align with:

• Valuation discipline: Ensuring portfolio companies are exit-ready, avoiding last-minute financial restructuring.
• Operational value creation: CFOs must drive EBITDA growth, margin expansion, and cash flow optimization.
  
• Agility in market shifts: Strong financial leadership is required to pivot exit strategies based on economic conditions.
  

The CFO profile that wins in today's market

What does a high-impact, exit-ready CFO look like? Evaluating CFO candidates should go beyond traditional finance skills. Today’s PE-backed CFOs must:

• Be EBITDA accelerators: Driving topline growth while optimizing cost structures.
• Have M&A and capital markets expertise: Essential for strategic transactions and IPO readiness.
  
• Master FP&A and data analytics: Leveraging insights for predictive decision-making.
  
• Be adept at storytelling: Crafting a compelling financial narrative that attracts buyers.
  

Finding a CFO who embodies these qualities requires a proactive approach, not a reactionary one. Waiting until the exit strategy is in motion is too late. Equally important is the Talent Partner’s understanding of CFO tenure and turnover.

In PE-backed companies, CFOs often have shorter tenures averaging around 2.5 years, which underscores the importance of selecting candidates capable of making immediate and impactful contributions. High turnover rates can disrupt strategic initiatives and erode value, making retention strategies and succession planning critical components of talent management.

Bridging the valuation gap: CFOs as dealmakers

The bid-ask gap between buyers and sellers is widening, making valuation alignment a challenge. An exit-focused CFO plays a crucial role in closing this gap by:

• Demonstrating sustainable growth: Buyers scrutinize earnings quality more than ever.
• Anticipating due diligence concerns: Proactively addressing financial risks to maintain deal momentum.
  
• Creative competitive tension: Ensuring multiple bidders drive valuation higher.

Key considerations for Talent Partners in CFO recruitment

In a shifting market, the CFO is the linchpin of private equity value realization. The opportunity is clear: place CFOs who are more than financial stewards – place those who are architects of the exit and align most closely with the investment thesis. The right hire ensures:

• Stronger financial positioning ahead of the sale
• Greater flexibility in timing the exit for maximum ROI
• Reduced risk of valuation misalignment with buyers

The best PE-backed CFOs aren’t found last-minute. The earlier a PE-backed CFO is embedded in the value creation plan, the stronger the exit. Key considerations:

• Proactive recruitment: Building a pipeline of top-tier candidates is critical. Engaging a CFO early in the investment cycle allows for the development and implementation of comprehensive value creation plans. Additionally, they are better poised to navigate market complexities, adapt to economic shifts, and capitalize on emerging opportunities.
• Top talent acquisition: In a competitive talent landscape, acting swiftly to secure top-tier CFOs can prevent rival firms from capturing the best candidates, strengthening leadership and operational capabilities. Those who act first will achieve better outcomes for their firms.
  
• Risks of delayed hiring: Postponing the CFO appointment can lead to missed opportunities for operational improvements and may hinder the company's readiness for sale or public offering.
  

Ready to secure a CFO who drives maximum value at exit?
Learn more from Partner, Heather Johnson.