As sponsors recognize the critical importance of post-acquisition operational value-creation strategies, it’s clear why leading private equity firms are searching for ways to centralize and standardize their approach to supporting the Office of the CFO (OCFO) across their portfolio companies.
And beyond simply supporting their portfolio company CFOs, building a standardized approach to the OCFO allows sponsors to create repeatable and predictable value-creation processes and accelerate time-to-value. In fact, many LPs are specifically inquiring about the existence of portfolio-wide approaches when investing in GPs.
To see how this works, it’s critical to understand the role and evolution of the private equity operating partner.
The Evolution of Private Equity Operating Partners
The initial wave of private equity operating partners was often made up of “generalists.” These operating partners supported PE sponsors across the portfolio by helping solve an array of business challenges – to the extent that their expertise allowed. This model served its purpose in the past; however, as new financial, operational, and technological demands have risen in the last decade, the generalist partner often lacked the depth of experience required to support certain functional areas, including the expertise required to support the OCFO.
This realization has ushered in the era of the specialist operating partner.
A specialist operating partner is a targeted portfolio support leader aligned specifically to portfolio companies’ value-creation initiatives. Rather than being generalists, these specialists tackle domain-specific challenges often in the areas of M&A Integration, IT, Go-to-Market, Human Capital, Operations, and, most critically, Finance. Specialist operating partners can “niche down” into functional areas that require the most specialized expertise and hands-on operating support while understanding portfolio-wide needs and collaborating horizontally when necessary. As part of this evolution from generalist to specialist, leading PE sponsors have created the dedicated role of the finance operating partner.
The Finance Operating Partner Carries the Torch
Elite finance operating partners master the minutiae. They can specialize in all activities and sub-activities required in the OCFO, including organization design and building the very process and technology architecture to run a high-performing finance function. They connect the dots in times of uncertainty, doing so in a variety of critical ways, including:
- Developing OCFO playbooks: Being fully attuned to what matters most in the OCFO, finance operating partners can create robust frameworks of sponsor-specific best practices, optimized technology stacks, and standardized processes to enhance confidence in the integrity of the financial results and forecasts. With clear guidelines, defined goals, and targeted CFO priorities, finance operating partners can improve FP&A, corporate performance management, exit readiness, and more.
- Building a CFO community: Finance operating partners foster collaboration, knowledge-sharing, and peer-to-peer support among portfolio company CFOs.
- Managing service providers: Operating partners can optimize the selection and utilization of external finance resources for portfolio companies. This includes architecting and maintaining cross-portfolio alignment with vendors and overseeing transformation programs.
Accessing and integrating the value-add services listed above are becoming mandatory to remain competitive. Now let’s zoom in on what may be the most important point: OCFO playbooks.
The Power of Repeatable Frameworks: The OCFO Playbook Advantage
Effective OCFO playbooks are surgical and decisive on a task-by-task basis while allowing for enough flexibility to be configurable to individual portfolio company needs.
Modern finance operating partners create and manage these portfolio-wide playbooks tailored to the specific needs of OCFOs at different stages of the investment lifecycle. OCFO playbooks provide a roadmap for success in key capabilities:
- Post-close support: Ensuring smooth financial reporting, FP&A setup, and transaction accounting assistance (e.g., closing balance sheet preparation and review, net working capital true-up, purchase accounting, opening balance sheet).
- Grow and scale: Strategic assessments of people, processes, and technology across the OCFO, merger integration support, and operational and technical accounting guidance.
- Optimize: Data strategy, IT transformation, and process improvement to drive efficiency.
- Exit readiness: Sell-side health checks, exit-readiness roadmaps, and carve-out or IPO readiness preparation.
By establishing an OCFO playbook with repeatable frameworks, PE sponsors ensure consistency and efficiency across their portfolios. This standardized approach reduces onboarding time, minimizes errors, and establishes best practices, ultimately leading to:
- Enhanced, transparent financial reporting: Consistent, accurate, and timely financial data empowers informed decision-making.
- Improved operational efficiency: Optimized processes and technology lead to cost savings and enhanced performance.
- Accelerated value creation: Streamlined operations and faster decision-making translate to quicker value creation.
- Reduced risk: Standardized processes and best practices around good common sense business controls mitigate potential risks.
- Increased investor confidence: Robust financial operations and transparency lead to enhanced investor confidence and improved deal valuations.
- Faster deal execution: Streamlined processes and standardized reporting accelerate M&A activity and shorten deal cycles.
Expert Support to Private Equity’s Finance Operating Partner
With increased focus on repeatable post-acquisition operational value-add strategies, the need for specialized expertise to support the OCFO becomes increasingly evident. The role of the finance operating partner stands out as a crucial agent for driving value creation and standardization across portfolio companies. In that multifaceted role, a skilled finance operating partner fosters collaboration among CFOs, develops robust playbooks to standardize and optimize financial processes, architects transformation programs, and drives exit-readiness preparation.
As a trusted advisor with comprehensive expertise developing OCFO playbooks in collaboration with PE sponsors, CrossCountry Consulting designs and implements transformative enhancements to propel PE sponsors toward greater success in an increasingly competitive landscape.
Contact CrossCountry Consulting to get started.