Our economy has stopped growing, and costs are exploding. It’s a toxic mix for mid-sized companies backed by private equity, because on the liabilities side they often carry ambitious leverage and strict loan conditions, the covenants.
So how much weight do PE firms currently give to restructuring expertise when choosing CFOs for their portfolio companies? The short answer, surprisingly: not much (for now). In our view, that’s partly because the economy is only just beginning to cloud PE portfolios. And only a small share of companies are hit hard, because PE has increasingly invested in healthcare, industrial services and new business models in recent years, and these tend to be more resilient.
Still, we’ve noticed something among our clients: they’re paying more attention to CFOs’ experience of complex financing situations and bank syndicates. Rarely has it mattered more for a PE CFO to know where the trapdoors lie in a 300-page loan agreement. CFOs who have already used alternative financing also have an edge right now. And a surprising number of PE clients are explicitly looking for CFOs who already have private equity experience. So:
• financing know-how beats restructuring expertise
• and PE experience beats the hunger of first-time PE CFOs
If many PE-backed companies do run into covenant or financing issues with their 2023 accounts, the message to headhunters will soon be: bring on the battle-hardened CFOs with PE experience! Industry knowledge isn’t the deciding factor. Or do you think a CFO’s industry knowledge trumps specialist refinancing expertise? We look forward to a lively discussion!
