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When a new private equity owner enters a company, it can be “one of the toughest transitions as a CFO,” according to director of finance transformation at West Monroe Connor Augustyn. “The PE transition, it’s not just about a change in ownership, it’s truly a reset of expectations, timelines, and the entire value narrative,” he said.
Keith Durden, CFO at AI-powered fintech platform Worth, has been a startup CFO in that transition before, mostly recently with payments platform Stax, where he led finance for six and a half years.
He said that when Stax brought on $245 million from Greater Sum Ventures, HarbourVest Partners, and Blue Star Innovation Partners in 2022, going through all the changes built resilience within him, adding that “every bit of it I’ll leverage going forward.”
Durden and Augustyn provided some thoughts on what a CFO needs to do to thrive when working with new financial sponsors.
The entrepreneurial mindset. For CFOs to best understand and work with a new ownership group, Durden said it helps to “put your leadership hat to the side” and adopt an “entrepreneurial mindset.”
From there, he said that key areas he focused on while transitioning to a new PE-backed firm were automation, ensuring he had a “roadmap similar to [what] product and engineering [had],” and “getting those core reporting functions down.”
“PE-backed firms, they love KPI reporting, they love things of that nature, getting nice, robust reporting out to your partners in a cadence that the business actually looks at—and not just finance,” he added.
Ensure alignment. Augustyn, who advises CFOs on ways to improve their operating models, said the mistake he sees disrupting CFOs most during a PE transition is “misalignment, not bad strategy or bad execution.” A diligent CFO navigating a PE transition will always have their eye on “meeting the investment thesis” of the group, he said.
“That investment thesis is constantly under review, so the narrative and the conversation and the collaboration between the CFO and the PE and the operating partner team within the PE group about, ‘What is the investment thesis?’ and ‘What are we prioritizing in our internal initiatives to meet the investment thesis?’, that’s really where a lot of CFOs fall down,” Augustyn said.
Lean up. That alignment, though, more often than not brings new growth expectations, Augustyn said—ones that can’t necessarily be achieved with the same team that got the CFO and the organization to that point.
Augustyn said that PE’s desire for bottom-line stability can then pose a challenge to CFOs and their teams’ existing headcount.
“The challenge that a lot of CFOs have, and really a lot of the growth mandate for private equity is, they continue to be one of the leaner functions of an organization, and it’s tough for [the CFO] to defend continuously growing [incremental] opex as revenue increases,” he added.