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Hold the fort vs exit support: leveraging interim talent to create success for a PE exit

Managing Director Jack Lane explores what these interim roles can look like, and how they can deliver success for organisations.

In the first six months of the year, we have seen a significant uptick in the volume of interim mandates focused on the end of the deal cycle. This is compared to the typical hiring rate against volume of deals, suggesting an increased demand for specialist talent, rather than just a reflection of the shift in the M&A market.

There’s a combination of pressures at play here leading to an increased frequency of these roles:

1. The increasing pressures of the CFO role in a PE backed business. I reference this in my previous article The CFO Conundrum but the macroeconomic maelstrom has certainly turned the private equity microscope towards the CFO position and investors are scrutinising performance more than ever before. Value creation, value protection, team retention, management information, debt management… the list goes on. Simply put, the day job isn’t easy.

2. Running an exit means burning the midnight oil at the best of times. In the current landscape, PE vendors are still laser-focused on maximising their returns whilst buyers, some of whom had their fingers burnt with the post-Covid deal boom, are cautious not to under-diligence and over-pay. Committing to an exit process at the moment is to put your nose to the grindstone – even for highly attractive, top tier assets.

Without the proper resources in place, it’s very difficult to alleviate both pressures. Ultimately, these interim hires are about de-risking both sides of the equation. These roles can be neatly divided into two separate camps: hold the fort or exit support.

Hold the fort

The interim consultant will provide bandwidth to the existing CFO, taking the day-to-day finance operations away from them and allowing them to work closely alongside the PE sponsors and CEO to run the exit.

Typically, this role requires someone with high EQ and strong leadership skills, able to seamlessly insert themselves into an existing function and keep the wheels turning. This is especially true where the incumbent CFO may have hived-off a ‘task force’ to support them on the deal. This role is critical in ensuring day-to-day finances do not fall off a cliff.

It’s absolutely not necessary for someone taking on this role to have led an exit before. It could be helpful, even if only for the appreciation of the task at hand, but it’s extremely unlikely to be a pre-requisite.

What we tend to look for and where we’ve helped organisations find success is by placing individuals who can demonstrate running finance functions, whether as a No1 or a No2 to a strategic CFO. Really, this is about taking as much off the plate as physically possible. Having an experienced finance leader in place to ‘hold the fort’ allows the CFO in situ to completely focus on the exit.

“One of our software investees was looking to augment its finance function in the run up to an exit. Finatal quickly sourced a high-quality candidate to drive operational finance systems, processes, and controls. This created bandwidth for the experienced CFO to focus on the more strategic and commercial aspects of the transaction, which culminated in a successful exit to a secondary private equity buyer six months later.”

Hannah Dray, Talent Lead, Livingbridge
Exit support

The interim will be directly engaged on the exit process, either as part of the project team or actually leading it.

If they are brought in to lead the exit, the incumbent CFO can focus on day-to-day activities and ensure there is minimal disruption to the business during the process. Typically, this type of hire is made where the incumbent is less experienced and has not lead a transaction before. Bringing in an experienced exit consultant allows the PE sponsor to lean on and communicate with someone who has ‘seen it all before’ and is intended to de-risk the process.

This role almost always necessitates prior exit experience in the relevant domain. Candidates who have completed numerous PE exits, whether on a permanent or interim basis, are in pole position. Those who have analogous sector experience to the target may find themselves at an advantage. A relevant exit in the same sector, in the same geography and at the same size can really take the biscuit here.

Ideally, this hire is made with ample time to allow an interim to assimilate with the management team and to start engaging with the narrative of the business. On the other hand, they are rarely made so far out before launching a process that the candidate is sat twiddling their thumbs.

“I have used Finatal to source exit-readiness CFOs across a number of Rockpool’s portfolio companies. We are often driving an exit to mid-market PE funds who typically expect a lot more from the financial lead on the deal. We’re able to turn to Finatal to deploy high quality interim talent to meet these demands; they understand the pace of PE, the nuances of an exit and who will blend seamlessly into a management team.”

Guy Ellis, Partner, Rockpool Investments

If the interim is brought on board to augment the CFO’s capabilities, they are likely to be providing bandwidth across specialist tasks like due diligence, modelling and helping to field vendor requests. They are frequently engaged with little to no contact with the wider finance function and can be completely hived off from day-to-day activities.

PE investors will always seek to de-risk this hire where possible, but these roles do not always necessitate direct exit experience. However, they will hyper-index on the specific skillset that they will deploy during the engagement. For example, someone providing bandwidth to financial modelling will be expected to have deep, hands-on modelling experience, demonstrated amongst multiple PE-backed businesses.

“I have worked with Finatal to source interims for my last two private equity exits – selling Qualitest from Marlin Private Equity to Bridgepoint and then selling MIQ from ECI to Bridgepoint. At Qualitest, we had to rapidly engage a SWAT team of interims to take on the increased workload when our investors chose to run hard at an exit. At MIQ, we had a more defined scope around sale-side modelling and we brought on a single consultant who worked very closely with me during the process. In both situations, Finatal was able to provide specialist resources that were able to hit the ground running and provide a huge amount of bandwidth during two very successful exits.”

John Henderson, Deputy CFO, MIQ

Having supported clients looking to go through an exit over the last 15 years, our team understands what questions to ask to provide the correct team – it is never as simple as just cycling through those who have recently completed an exit, without understanding the context of it and their involvement. It’s a fallacy to expect EV on exit to correlate with quality of the management team or the involvement of the finance leaders in creating that extra turn on the multiple.

Of course, it may ring true in many situations but equally some of the best exits, the ones that funds may celebrate as incredible success stories, are not actually those that return the greatest value. Rather, there are some exits that were better described as miracles – where the financial return may not be captured in top quartile reports or find themselves in a shiny PE newsletter, but the management team has delivered outstanding outcomes for all involved.

Our expertise enables us to place candidates into the business contexts in which they will excel and realise value for the organisations they work with. We have built an unrivalled network of financial professionals who have taken businesses and supported CFOs through exits. By continually tracking deal activity, we keep a keen eye on both the veteran CFO community and rising talent – many of whom come to market as first time interims for these very opportunities. Our access to pre-vetted talent means we respond to the urgency of exit-preparation with speed and clarity.

If you’re looking to engage specialist interim talent for a portfolio company exit, please do get in touch for a confidential conversation.