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Delivering the Deal: The role of the FD in a private equity owned business

As a private equity investor backing companies with the potential for dynamic growth, here at Lyceum Capital we know that a strong finance director is key to delivering the value creation we seek.

Having invested in 27 portfolio companies and more than 110 add-ons over the past two decades, our network of talented FDs is strong.  We are always excited to meet ambitious, skilful and committed finance professionals to team up with.

Working with a private equity growth investor is a unique experience.  It is both “challenging and immensely rewarding for accounting professionals, be it the financial controller or finance director,” says Sarah Hunt, founder and managing director of specialist recruiters EquityFD and EquityFC.

Hunt’s advice for FDs seeking to join a business that works alongside a private equity investor is this: “Make sure you get to know the executive team and align your goals.  Then ask yourself if you have the right mindset and broad enough skills to work with a private equity team, as you will be held accountable every step of the way and your role could not be limited to just the numbers.  Lastly, make sure you pick the right investor with expectations that match your own.”

With that in mind, what is it really like being an FD in a private equity-owned business?  Drawing from personal experience, some successful PE experienced FDs offered the following opinions and wisdom:

Embrace the journey

“I am a believer that working alongside an investor forces you to understand everything, focus on growth, focus on cash flow, focus on working capital.  No one could ask me anything I didn’t know.”

“It can be dispiriting in a privately-owned business if there is no clear or ambitious growth strategy.  It is stimulating to have one.”

“A potential future exit gives you as FD a high level of control and allows decisions to be made quickly.  On the downside, the demands on your personal life are immense.”

“We went as far as preparing the accounts in dual format (US and UK) as we were fairly sure from the beginning that the likely future purchaser would be US-based.  This did turn out to be the case.  It saved so much time and effort and crucially gave the purchaser real confidence in the information being provided.”

Understand your role as value creator

“You are the guardian of the integrity of the deal.”

“Aim to deliver an infrastructure that is so strong that management could go under a bus and you could still run the business.”

“You need a strong relationship with the CEO and chairman.”

“As FD you can enhance profits and the multiple.  On the profits side its good planning and aggressive budgeting.  On the multiple, its ensuring that the controls and governance are second to none.”

“Read everything – no-one else on the board will and everyone will assume that you have.”

“Be mindful that the company is always up for sale.  You must know where the skeletons are buried, make sure everything is tidy and open to scrutiny.”

Build a strong team around you

“Identify the key people you will need and ensure that they are professionally and financially motivated.  Spread incentives as widely as possible.”

“It’s a virtuous circle, you must recruit the right people, i.e. those who will support you and see the career benefits of being involved in the journey.”

“They assume you are going to make money, you need to incentivise them.  They don’t need to be huge numbers but it will keep them focused.”

“If you have to do everything yourself you will collapse.”

Talk to each other

“It’s an FD’s role to keep the communication lines open between the management team and the investor.  Agree all targets up front and keep everyone informed and in the loop.  You are being relied upon to keep a calm head during demanding periods.”

“Where there is disparity of valuation between the investor and the management, it is the role of the FD to act as a bridge and focus on what is best for the shareholders.”

Be brave

“Have the guts to admit it if a deal is not going to happen.”

“Always deliver bad news personally and as early as possible.”

“Deliver everything on time and quicker if possible.  It gives everyone confidence in the information.”

“Plan for [the next] 12 months not three and don’t spend the money before you get it.”