DACH Portfolio Company CFO Perspectives on Collaborating with PE Investors

Introduction

Russell Reynolds Associates (RRA) interviewed more than 15 current portfolio company CFOs to gain a deeper understanding of how CFOs and investors work together. The interviews focused on three topics: collaboration, communication, and level of involvement. This article presents key findings from the interviews, shedding light on the nature, speed, and differences in collaboration among different types of investors.

Findings

Collaboration with investors is fast, direct, and result-oriented

CFOs emphasized the high velocity of collaboration with investors. Collaboration tends to be fast, direct, and frequent, driven by a focus on performance and supported by data and facts. CFOs also highlighted the importance of the value creation plan, which is usually created for each portfolio company and tracked diligently by all parties involved.

Transparency and responsiveness are key

Transparent business reporting was mentioned as a top priority by all CFOs whom we interviewed. They stressed the importance of providing clear and comprehensive information to investors. Additionally, nearly 85% of CFOs mentioned that responding rapidly to investors is of high importance.

Collaboration varies depending on the ownership structure

Our interviews explored differences in collaboration when working in PE-backed companies, listed companies, and family-owned companies. CFOs described working in PE-backed companies as demanding, hands-on, and pragmatic, with a strong sense of urgency. On the other hand, when working in listed companies, the focus tends to be on quarterly results, with more oversight of legal and compliance matters. When working in family-owned companies, the focus is on having a strategy that prioritizes longer-term performance. When two types of shareholders are involved (e.g., PE and family), then collaboration becomes even more challenging.

Performance reporting is rigorous and frequent

CFOs cited regular communication with investors as crucial, with monthly meetings involving detailed reporting packages being the most common approach. In PE contexts, there is a strong emphasis on various financial key performance indicators (KPIs), with particular importance attributed to EBITDA. Feedback from investors was described as frequent, direct, and non-political, fostering an open and transparent dialogue.

Communication and collaboration is influenced by fund size

The size of the investor influences communication and collaboration dynamics. Large-cap investors tend to maintain a more distant relationship with their portfolio companies, focusing on structured processes and displaying less involvement. In contrast, small- and mid-cap investors were described as more hands-on, operational, and detail-driven.

International funds collaborate at an even faster pace

CFOs noted differences in interactions with domestic and international funds. The latter often have a greater financial focus, but less understanding of the German context. Even though German funds are extremely fast-paced, international funds were perceived as even more pragmatic and faster in their decision-making, with more back-office support.

Standardized reporting and regular meetings are valuable

Regular meetings, such as monthly reporting meetings and quarterly board meetings, are vital for effective communication between CFOs and investors. Additionally, the use of KPI dashboards helps with tracking and communicating financial risks in an open and transparent manner.

Touchpoints with investors are frequent

Nearly all CFOs have weekly touchpoints with investors. While the engagement in operational matters is intense at the beginning of the journey, it gradually decreases as long as the company's performance meets the plan and core KPIs are achieved.

Expert recommendations

The CFOs whom we interviewed made the following recommendations for collaboration with investors:

1. Deliver results according to the mid-term plan.
2. Be well-prepared, with arguments and numbers ready for healthy debates about direction and strategy.
3. Avoid surprises! Providing full transparency and being able to explain details while maintaining a strategic view are key.
4. Understand the business and translate it into future financial performance.

Conclusion

Collaboration between investors and CFOs is characterized by speed, directness, and a focus on results. Transparency, responsiveness, and adherence to established reporting protocols are crucial for effective collaboration. Understanding the differences in collaboration across ownership structures and investor sizes helps CFOs navigate these dynamics more effectively. By leveraging these insights and expert recommendations, CFOs can foster strong relationships with investors and drive sustainable financial performance in their portfolio companies.