October 13, 2016 – In many respects, private equity firms demand more of executive recruiters than most companies, private or public. Foremost, there’s a heightened sense of urgency and significance on recruiting C-level talent for their portfolio businesses, says Kathryn Kehoe, managing director at CMF Associates, a consulting firm to the middle market equity sector whose services include a well-respected search practice.
On average, PE firms seek a return on their investment within five years, she says. To get there, they want people who have demonstrated that they can get the job done.
“They like to recruit winners – executives who have proven experience of adding value quickly and typically within a leveraged environment,” Kathryn told me in a recent interview. “Culture fit is also extremely important as there needs to be a strong and trusted relationship between the CEO, CFO, PE company, and the board.” Most of her clients, she says, are looking for candidates that have strong experience working within PE-backed businesses. “It is very rare that we place someone that has not worked in this unique environment. The private equity world is very large and at the same time very small when it comes to talent.”
CMF Associates, which is based in Philadelphia, was founded in 2001. It launched its search function seven years later in response to its growing clientele’s need for CFOs and other financial talent. Kathryn, for her part, came to CMFAssociates from Langer, Inc. (now PC Group), a medical and personal care product manufacturer, where she was senior vice president of U.S. operations and strategy and a corporate officer. She also ran her own firm, Kehoe Associates, which provided HR, organization development, and recruitment consulting services to the middle market across a range of companies.
As CMF Associates’ finance and operational consulting business grew, it became clear that many of its clients had a strong need for interim and permanent finance talent to supplement or replace their finance teams. “Because our project teams are already in the field working within these finance groups, our executive search solutions have become a natural extension of our core service offerings and they add more value to these clients,” says Kathryn.
Sophisticated Leaders Required
Today, CMF Associates’ executive search practice has placed more than 125 leading finance professionals, primarily within middle market, private equity-backed companies.
Although its not unusual for PE firms to be seeking talent for top-tier positions, the stakes remain exceedingly high. Recruiting the right chief financial officer is a prime example.
“Typically PE firms demand a more sophisticated and focused leader in the top level finance role,” says Kathryn. “Let’s face it, CFOs are the eyes and ears on the ground for investors. They are guardians of the company’s assets and need to provide visibility and timely reporting as to the state of their business.” Remember, she says, “PE professionals typically have a high-level finance background themselves. They expect the same level of expertise from their CFOs.”
Recruitment of CEOs, on the other hand, is less common. But when the need arises, it is often part of a PE firm’s specific strategy. “In many cases, CEOs are brought in with their own executive teams in mind,” Kathryn says. “We do see many PE firms that already have a CEO vetted with specific industry experience before they even look to acquire a company. It can be difficult to replace a founder who has strong relationships and ties to a particular industry or business. In this scenario, it makes sense to keep the founders in the business and have them transition out over a time – typically one year – before a new CEO is placed.”
Stewardship vs. Value and Returns
CMF Associates’ expertise goes a long way in helping find leaders for PE portfolio companies. Understanding the dynamics of the CFO in the middle market as it has evolved is critical to identifying the right person. “The CFO position has become less about financial stewardship and more about creating value and returns,” says Kathryn. “There is a lot of money on the table in a PE-backed business. There is no honeymoon period for a CFO in one of these companies.”
As such, a recruiter has to be able to produce CFO candidates who are capable of hitting the ground running and making an immediate impact. “We find that PE companies are looking for well-rounded, smart business people who are prepared and equipped to handle many business issues,” says Kathryn. “The CFO in a PE-backed company is a trusted advisor and partner to the CEO and to the board. The role is highly visible with high levels of accountability to the PE company.”
For CMF Associates, executive search was a natural outgrowth and extension of its consulting business. Helping find solutions for a client’s challenges oftentimes leads to the need for a search. The two go hand in hand, Kathryn says.
“We have never been criticized nor have we had a conflict of interest arise between our consulting and search practices. Most of our clients like the fact that we can support interim and permanent search needs within the finance team. Because our sole focus is to provide operations and human capital solutions within finance teams of companies going through a transaction or transition, there are no barriers between our consulting and search practices. They are simply an extension of one another. CMF does have a governance model and project steering committees, which allows us to be very transparent with our clients.”
Many PE firms have built in-house recruitment operations. Yet when hiring for certain search functions and roles like the CFO, they tend to call in outside help. “The talent partner operation is typically a one-or two-person team that simply cannot handle all search needs within the PE firm and all of its portfolio companies,” Kathryn says. “They typically spend their time on the CEO searches. Niche search firms such as CMF that solely focus on finding top finance talent, for example, are used quite often by these internal talent partners because they recognize that the CFO role is critical to the performance of their investment. Executive search firms in this case with in-depth domain experience are able to provide a higher caliber candidate and value creation in the portfolio company.”
Contributed by Stephen Sawicki, Managing Editor, Hunt Scanlon Media and Scott A. Scanlon, Editor-in-Chief, Hunt Scanlon Media