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Many private equity funds hear the words “interim executive” and think the only application is an Interim CEO or CFO for turnaround or short-term fill-in of a portfolio company. But PE funds seeking a great return look to interims for their unique abilities to build and transform companies.
An Interim CEO brought on to lead a recently acquired private equity portfolio company, for example, may match the hold period of the fund. That could mean several years of working to build, grow, and ultimately exit the company, hitting big returns for everyone involved.
Here are six major use cases for an Interim CEO, Interim CFO, or other interim executive in PE-backed portfolio companies:
1. Interim Executives in Diligence
Most funds hope to spread their wings and work beyond industries where they’ve already had success. In looking at new industries where acquisitions may cost less and produce higher returns, a little more diligence is often needed. The further afield a fund goes, the more they need expert leadership removed from prior operating teams.
We recently matched a $5B+ fund with an Interim CEO expert in e-commerce and consumer goods to help determine if a potential acquisition made sense. While the fund had deep experience in the manufacturing space, understanding the current challenges and opportunities to expand go-to-market strategy was essential. Once the deal closed, the executive transitioned into an ongoing advisor role to ensure the acquisition would be a success.
Diligence work is not the strict definition of interim, which involves operating roles with decision-making authority. However, many interim executives gladly take on diligence projects, drawing on their experience serving as Interim CEO, CFO, or another C-suite role at PE portfolio companies. They view a potential acquisition through the eyes of an operator, giving insight into challenges and opportunities to come, from growth potential to integration.
Many interims assume a leadership role in the acquired entity post-closing, while others phase out once the deal is closed.
2. Interim Executives in Process Improvement and Upgrade Mode
When a professional fund acquires a company, it’s not uncommon for the company to lack process and timely reporting at a standard required by PE funds. Maybe it was a family business, or a private company that could live with lots of informality, but the new owners will start to make upgrades as needed.
Many funds report that at the very least, they will bring in an Interim CFO or a new senior financial manager when acquiring a company to establish a higher standard of accounting, financial controls, and reporting. In other cases, it’s technology and operations that get an overhaul with an Interim CIO. ERP implementation. Outsourcing. Supply chain optimization. Funds will look to interims to come in on a project basis, or in some cases come alongside legacy management to raise the bar.
When a private equity fund had to fire the CEO of one of its portfolio companies for underperformance, an Interim CEO from InterimExecs RED Team was on-site ready to go. They instantly stepped in to calm the team, put a clear plan of action in place, and ensure morale and productivity stayed high through the transition.
Within 5 days of assessing the business and working with the team, the Interim CEO uncovered $1 million in missing profits. That was followed by performance improvement initiatives that resulted in more efficiency and increased profits, ultimately culminating in finding a permanent CEO a year later.
3. Interim Executives in Closing Mode
Even the best executive search firm for private equity can take upwards of six months for the permanent CEO or CFO search. No one wants to see a transaction slowed for lack of one key role – hence the efficacious use of interims – strong leaders to help close the deal, establish better systems and controls, and help recruit any new permanent executives. A good interim CEO or CFO will put in place a plan, systems and processes that can be handed off seamlessly.
4. Interim Executives in Growth Mode
While most interim engagements run 8 – 24 months in growth mode, it’s not uncommon to hear that an interim CEO has made the decision to match their tenure to that of a PE fund’s goals, especially if the fund sees a possible exit within three years. In this case, the fund seeks an interim for their unique skillset in building and selling companies time after time.
Interims are change agents with backgrounds that include corporate spinoffs and successful exits. The CEO in this role is compelling when their track record already has multiple wins and exits already under their belt.
5. Interim Executives Prep For Sale
The vast majority of PE funds, while they may play down the cycle of purchase to eventual exit, must sell sooner or later. When they do, they’ll hope the management team is up for this one-time event. But what happens when the team has never gone through an exit?
For many funds, even if they have an investment banker helping guide the process, an untested team may fall down at the exit despite being good operators. In this case, it pays to bring in interim executives who are not only experts in company operation and leadership, but have also gone through a sale process – multiple times.
On the flip side, funds often choose to bring in interims a year or so before they see a potential exit on the horizon to fully prepare the company for its best outcome. Ultimately everything from systems to processes, branding, and unique IP will add to an increased valuation, so interims can help a company move toward maximum asking price.
6. Interim Executives in Distress or Turnaround Mode
Many PE funds are familiar with using turnaround executives in portfolio companies. The need for experienced operating executives to take over leadership roles when things go south with a portfolio company is usually a fire drill.
Maybe a surprise popped up post-acquisition. Maybe legacy management could not get on board with a bigger future. Despite circumstances, the good news is that many Interim CEOs and Interim CFOs are expert at turnaround and distress, tackling the toughest projects, regardless of external circumstances.
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InterimExecs RED Team is an elite group of CEOs, CFOs, COOs, and CIOs who help guide private equity portfolio companies through turnaround, growth, or absence of leadership. The need may be role (CEO, CFO, etc.) or project driven (merger, acquisitions, integration, ERP/CRM implementation, process improvement). Call +1 (847) 849-2800 or request a confidential conversation about how we can help you here.