Rutherford Cross held its most recent Interim CFO/FD Group meeting with the discussion being led by Graham Neill, Investment Director of N4 Partners. The call was attended by a number of highly experienced CFOs from a variety of backgrounds including Engineering, Manufacturing, Energy, Transport, Technology, Environment, Leisure and the Public Sector.
After introductions around the table, Graham gave an insight into the activities of N4 Partners who work with businesses through a combination of investment and advisory work.
N4 launched in 2020, with the strategy of working in partnership with SMEs who were at an inflexion point. The team at N4 considered their combination of both direct investment heritage alongside broader advisory experience would provide a differentiated offering in the market.
As a new name in the market, but one with a long heritage led by many familiar faces, N4 have been delighted to support some of Scotland’s outstanding organisations and entrepreneurial management teams, across both the Investment and Advisory landscapes. The objective of the discussion was to get the perspective from the Investor on the key aspects for the CFO to consider when working in a Private Equity backed business. Combined with the views of the experienced CFOs in attendance, a number of whom have worked with PE partners, the session was both interactive and insightful. The conversation was split into 3 main topics: the current fundraising markets; what success looks like from the Investor’s point of view; and how to access opportunities with Investor led businesses.
Graham led the discussion, commenting that similar to the UK, Europe and America; the Scottish investment market has been exceptionally busy for the last 18 plus months, with deal activity largely down to the liquidity available to Investors. There is a myriad of funding options out there, making this one of the key challenges for CFOs of businesses looking for investment as they map out the investment landscape and try to identify the most suitable options. Whilst of course investment fundamentals that drive returns remain front and centre (i.e. commercial strategy; market position and opportunity; management track record; financial performance etc), it was highlighted that ESG (Environmental, Social and Corporate Governance) is becoming an ever increasing consideration as Investors filter deal opportunities. The value of relationships was also highlighted as being key when navigating the fundraising markets, as this is where the strength of your relationships with Advisors or Funders will help with referrals and recommendations. Finally, given the strong end market outlooks, resilience during the pandemic and the ability to communicate a positive ESG message; certain sectors are seeing higher levels of deal activity and capital allocation including Healthcare, Energy Transition and Technology.
What Does Success Look Like?
The question was posed, “Is the role of the CFO properly understood”? There were a range of responses including that the role of the CFO is ill defined by necessity as it varies depending on the size, sector and specific challenges and opportunities within each business. The CFO role is usually very broad and all encompassing. It is important to understand what the key objectives are for the CFO; ranging from setting strategy, building or rebuilding the team, to raising capital and many more.
The Investor looks for a range of attributes from the CFO. Depending on the situation, these can include exceptional stakeholder skills which are able to balance the differing priorities between all key parties involved; having a track record of managing cashflow; and showing clear leadership in proactively going to the Investor with options to drive performance and returns. Finally, the importance of having the right systems, processes, people and culture in place before accessing capital was noted. The foundations need to be there if you are going to scale the business.
Accessing PE Backed Opportunities
It can be challenging accessing CFO or FD opportunities in PE backed businesses if you have not had that direct experience before. Being in the investment ‘ecosystem’ can be helpful, for example undertaking a lower level or project related role in a PE backed business can lead to cross referrals. Given the increasing importance and focus on ESG, enhancing your own ESG toolkit can also help through personal CPD and in many situations could be accretive to the skills already in place in a business. Finally, the key transferable skills Investors look for when hiring new permanent or interim CFOs include experience in contributing to, leading and driving the business strategy; adding value in tight timescales; successfully handling cashflow; and reporting to multiple stakeholders regularly.
Thanks very much to those CFOs who attended, and also to Graham for leading the discussion and providing his unique perspective and valuable insights. If you are interested in the role of the PE backed CFO or would like to get involved in the future topics discussed by our group, please get in touch with [email protected].