Private Equity Recruiting: Finding Leaders Who Make Impact

October 7, 2016 – There is no other sector that demands such top end service from its search partners than private equity. Portfolio companies represent some of the most innovative, well-funded and high-growth concerns in all of business. As a result, much of the talent that private equity firms seek are highly-charged change agents — a professional breed getting more difficult to recruit.

Sitting at the epicenter of it all is Philadelphia-based CMF Associates. Largely known as a consulting firm to the middle market private equity sector since 2001, CMF launched a search practice in 2008, a result of demand from its expanding client base that were seeking CFO and other financial talent. Spearheading the initiative is managing director, Kathryn Kehoe.

In the following interview, Ms. Kehoe discusses the talent acquisition process, including why identifying ‘second generation’ finance professionals is so critical. She also addresses whether client conflicts surface between the firm’s search and consulting practice and she takes a look at the recent trend by private equity firms to internalize their search efforts.

Prior to joining CMF Associates, Ms. Kehoe was senior vice president of U.S. operations and strategy and a corporate officer at Langer, Inc., a medical and personal care product manufacturer. She was also president of Kehoe Associates, a consulting firm providing HR, organization development, and recruitment consulting services to the middle market in a variety of industry sectors.

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Kathryn, CMF is largely a PE consulting firm. Tell us about the move into executive search eight years ago at the height of the financial crisis and why you did it. 

Our executive search practice began in 2008 as a result of client demand. As CMF’s finance & operational consulting business has grown, we have found that more and more of our clients are in need of interim and permanent finance talent to supplement or replace current 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. Today, our executive search practice has placed over 125 leading finance professionals, primarily within middle market, private equity-backed companies.

In some instances, when recruiting for a PE client, you are placing ‘second generation’ leadership. Can you elaborate?

Replacing existing CFOs is fairly common when recruiting for a PE firm. Typically, PE firms demand a more sophisticated and focused leader in the top level finance role. 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, PE professionals typically have a high level finance background themselves. They expect the same level of expertise from their CFOs. Less common, but sometimes replaced, are CEOs. In many cases, CEOs are brought in with their own executive teams in mind. 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.

Your firm places a high percentage of financial officers, including CFOs. In a PE scenario where you are recruiting for a client’s portfolio companies, do the candidate types differ from those you seek in a traditional search?

This is not a nuance; you need to understand the dynamics of the middle market CFO role which has evolved tremendously over time. The CFO position has become less about financial stewardship and more about creating value and return. 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. CFOs need to make in immediate impact and be able to hit the ground running. We find that PE companies are looking for well-rounded, smart business people who are prepared and equipped to handle many business issues. 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 accountability to the PE company.

The search industry has been criticized, in some respects, of conflicts of interest whereby a search firm will cross-sell ancillary services they provide. How does CMF guard against any inherent conflicts between your search practice and your consulting practice?

Our search practice is a natural extension of our consulting business. CMF problem solves for our consulting clients which in many cases leads to search needs. 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 allow us to be very transparent with our clients.

A number of companies, including PE firms, are internalizing their search capabilities. A recent example was the defection of Anjali Bansal, who led Spencer Stuart’s PE and CEO practice in India. She left to run search internally for TPG. What can you tell us about this trend?

We do see a trend in PE firms internalizing and adding talent partners to their teams. However, we also find that these talent partners are still using third parties for certain search functions and for roles like the CFO. 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. 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.

What are some nuances of recruiting in the PE arena? What are the key aspects from a talent acquisition standpoint?

The demands of PE firms differ greatly from that of private companies and public companies. We find a higher sense of urgency and importance placed around recruiting for C-level talent within PE-backed businesses. PE companies are looking for a return on their investment within an average of five years. They like to recruit winners — executives that have proven experience of adding value quickly and typically within a leveraged environment. 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 our clients 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. Fortunately, CMF has been able to build strong relationships with top finance talent for over 15 years. Our clients have asked for assistance in finding them and we have been able to deliver.

Contributed by Christopher W. Hunt, Publisher, Hunt Scanlon Media and Scott A. Scanlon, Editor-in-Chief, Hunt Scanlon Media

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