Insights
The carve-out finance gap.
When a division leaves its parent, the finance function does not come with it. What follows is the most time-constrained appointment in private equity, and the one most often filled by the wrong kind of candidate.
What actually leaves
A carve-out buyer is usually clear that they are acquiring a business and not a corporate function. What is less often held in view is how much of the operating machinery was never in the division at all.
The consolidation and reporting systems belong to the parent. So, frequently, does the general ledger instance, the treasury relationship, the insurance programme, the audit relationship, the tax function, the payroll provider and the banking infrastructure. Several of the people who ran month-end for the division were never employed by it. On completion, all of that stops being available.
The business continues trading throughout. That is the difficulty. This is not a build conducted in a quiet period; it is a rebuild performed while the company operates, reports to a new owner and is held to a plan written before any of this was visible.
The transitional services agreement is the constraint
Most carve-outs run on a transitional services agreement under which the seller continues providing systems and support for a defined period, commonly in the range of several months to half a year.
Two things about a TSA shape the hire. The clock belongs to the seller, not the buyer, and extending it is expensive and sometimes refused. And the seller's incentive is to exit the arrangement, not to make it comfortable. A finance leader who assumes the deadline is negotiable has misread the document.
That makes the appointment unusually unforgiving. The function has to be standing before the support is withdrawn, and the date is known from day one.
Why the obvious candidate is often wrong
The instinct is to hire for scale: someone who has run finance in a business of the size the carve-out will become. It is the wrong axis.
A CFO from a large, well-resourced group has spent a career with a shared service centre, a treasury team, a tax department and an internal audit function. Those are precisely the things that do not exist here. Their experience is of directing a function, not constructing one.
What the situation needs is someone who has built. Narrower CVs, often from smaller businesses, frequently serve better, because the work is selecting a ledger, standing up a close, hiring a small team quickly, getting an audit relationship in place and deciding what can be deferred without creating a problem at exit.
What to look for
- A finance function built or rebuilt from a standing start, with dates attached.
- Direct experience of operating under a TSA, and of what was still unfinished when it expired.
- System selection and implementation carried out under time pressure rather than observed.
- Comfort deciding what to leave undone, which is most of the job in the first six months.
- Evidence of hiring a small team quickly, since they will be recruiting while delivering.
Starting before completion
The separation plan is usually written during diligence, which is also when the finance requirement becomes legible. Sponsors who begin the search at that point are choosing from the market. Those who begin at completion are choosing from whoever is available, with the TSA already running.