By Jim Wong, CPA | January 13, 2014

Black Monday isn’t only a term used in financial circles. The NFL recently had its own Black Monday of a sort, when five head coaches were fired in one day.

Leading up to the Super Bowl, and in the thick of the final stretch of the playoffs, it makes sense. If your team didn’t make it – worse, if they crashed and burned in the final few games – you’re probably out.

Now, let’s use this analogy in financial terms. The CFO is the coach. Your company is the team. And the owner of said team is the private equity firm that just bought your company.

Yikes. Feels a little more real now, doesn’t it?

Private equity firms are investors. And like all investors, they want to make money. Otherwise, why get in the game, right?

Many will immediately set about cutting costs. They may shuffle staff, cull the dead wood through layoffs, and hire new managers, seeding the organization with people they’ve worked with or have had successes with in the past.

So, as the CFO of an organization snapped up by a private equity firm, the question becomes: Will you be able to keep your position in the team? And the answer, as usual, is “It depends.”

If your company is thriving, the partnership that develops with the new investors might work out perfectly fine. They might be more prone to allowing the current team to remain, and keep on with, what up until the purchase, has been great work.

If a private equity firm is brought in to help fix a floundering business, however, the situation will probably be very different.

As John Pennett, partner-in-charge of the life sciences and technology groups at accounting firm EisnerAmper said in a recent article, “It’s usually that a private equity firm is coming in because the company is in a certain part of their life cycle…so it’s a turnaround and they want to bring in a turnaround guy or it’s a growth story and we’re gonna bring in a guy who knows the markets better.”

He also mentions that CFOs might be targeted because they tend to be the bearer of bad news: “‘We missed the mark,’ ‘we need more money,’ ‘we didn’t meet our bank covenants,’ or ‘we don’t have any money to make distributions,’” for example.

One thing is certain – as the CFO you will no longer have the kind of control over the finance department you’ve been used to. Your investors will be monitoring the books and the budgeting very closely, and will expect to be involved in the minutia of the fiscal planning.

Remember, the private equity firm has invested their money, so be prepared to treat them much as you would a board of directors. Overall, as Pennett mentions, “…the private equity firm is entitled to have some portion of their debt repaid. They want to be able to see the company is healthy and that they don’t have to put up any more money to [keep] the ship from sinking.”

So, if you’re a CFO and you manage to hang on during what will be a period of change and uncertainty, be prepared to work with the new investors, alter your methodology, and adapt to the new ways of working.

Have you experienced a private equity firm buying the company you worked for? What changes, if any, occurred?

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.