An experienced CFO can join a middle-market private equity-backed portfolio company with a base salary between $250,000 to $350,000 plus bonuses and equity. Altogether, with equity, a high-performing CFO could make millions of dollars and then do it again with another firm.
Given that high earning potential, the vetting process is, of course, rigorous and intense.
Our firm, CBIZ CMF, has worked with more than 200 middle-market PE firms, providing a host of services including executive search. Over the past five years, we’ve placed 150-plus finance leaders, primarily CFOs but also direct reports like controllers and FP&A leader, at PE-backed portfolio companies.
It’s usually about 80 days from when we begin identifying candidates to the day the newly minted CFO walks in the door. A search begins with a team of PE-fluent researchers who qualify candidate profiles based on a set of specifications. The team first looks for previous PE-backed experience.
While two or three years ago experience working as a CFO in a PE-backed business was absolutely required, the candidate pool has tightened during that time. Now, although the responsibilities of the role have widened, candidates that have served PE-backed companies in the roles of finance vice president, controller, or interim financial leadership, or transaction advisory are all now being considered for certain situations.
The research team also looks for industry experience. When placing a candidate in a health-care portfolio company, we look for a CFO with a background in government and commercial reimbursement. Experience working in levered environments is always required, considering the debt on the books at many PE-backed businesses, and CFOs must be ready to communicate with lenders.
If someone meets those standards, he or she is next interviewed by a search associate experienced in evaluating middle-market private equity CFOs.
The CFO candidate is grilled on his or her career, accomplishments, and the reason for leaving his or her previous positions. The recruiter also asks some situational questions. For example, have you had experience in a situation where you had to obtain financing? Have you ever had to segment and reprice an entire product line? What is your experience leading an ERP selection and implementation process? Have you sold a business?
Less than half of the candidates make it to the third round of this process, which is a behavioral interview conducted by a director or managing director from our firm. The purpose of this interview is to assess the candidate’s leadership attributes and how they fit with what is important to our client.
Most PE firms are looking for their portfolio companies’ CFOs to be a business partner to the CEO and the PE fund. Of course, ideal candidates must have a strong discipline in numbers, but they also must be able to solve complex business problems and keep their composure in stressful situations. PE firms are buying businesses at high multiples with the expectation of excellence in execution.
During this portion of the interview, the candidate walks the interviewer through specific situations, such as what he or she would do if a company were in violation of a specific bank covenant or there were a tight cash-flow situation. We also may ask about the candidate’s thoughts on bolt-on acquisitions and the work required to integrate not only the back office but also commercial operations.
Once we determine that the candidate is a fit, the next stage is a peer-to-peer situational interview conducted by a CFO-level CPA from our firm who manages multiple PE portfolio company consulting engagements. This is a two-way interview. While certainly we’re trying to continue to vet the candidate — in a PE-backed environment in the middle market, the difference between good and great may be tens of millions of dollars of equity value for investors — we also are trying to sell the candidate on the opportunity to work for the company.
At this point, our CFO-level interviewer asks nuanced questions. The candidate may also be asked about specific assertions made in previous interviews — for example, about how they applied revenue recognition rules in a certain situation.
We’ve now whittled down the field to three to five candidates to present to the PE firm and/or the CEO of the portfolio company, with the goal of making it difficult to choose among two to three excellent options. We’ve heavily vetted these candidates and put them through the ringer to ensure not only that we provide an A+ player for our client but also to hedge our bets. That is, in the current competitive market, a typical candidate for a middle-market CFO job at a PE portfolio firm likely is evaluating other job opportunities.
Executives interested in these positions should know that interviews are primarily conducted via phone or video. Our team prefers interviews using a Skype-like program specific to recruiting, and often the PE firm and the CEO will interview the candidates electronically before inviting them to meet in person.
Candidates concerned that their lack of PE experience disqualifies them from being considered should not be discouraged. The number of PE-backed companies has eclipsed the available talent. In the case of a smaller portfolio acquisition, a PE firm may be willing to hire a CFO without PE experience as long as the candidate has experience managing in situations specific to the company.
That being said, you have to be in the top 20% of your professional peers in terms of skill and talent. That’s why the process is rigorous, tough and exhaustive. In the PE world, it’s survival of the fittest.
Thomas Bonney is senior managing director and David Haslam is director of talent at CBIZ CMF, a provider of transaction and transition-focused financial, operational, and human capital solutions to private equity firms and their portfolio companies.