Gary McGaghey CFO

Gary McGaghey Explains How Private Equity CFOs Can Transition to CEO Roles

Gary McGaghey’s insights into why CFOs can make great CEOs.

There are various reasons why a CFO may seek a CEO role, even CFOs who have great reputations in the private equity arena and enjoy plenty of opportunities here. Many CFOs — particularly those who have the ambition to lead a business with great market opportunity and growth prospects — know they would flourish as a CEO. This is often especially true for CFOs who have lots of experience in achieving optimal financial outcomes, have partnered CEOs, and have the backing of a private equity company.

However, once in their new role, a first-time CEO will need to adapt. Here, M&A expert Gary McGaghey explains how CFOs can thrive in CEO positions. McGaghey is well-versed in all aspects of M&A, including the softer side, which is relevant to both CFO and CEO responsibilities. He has presented on this topic on multiple occasions, drawing on his experience in disposal (with European Frozen Foods), joint ventures (with Pepsi Lipton), and acquisitions (with Tigi Hair).

How a CFO’s Experience Can Help Them Step Up to CEO Level

A CFO — especially a CFO who has worked for a private equity company — will likely have transferable skills and credentials when it comes to stepping up to CEO level. For example, both CEOs and CFOs measure business performance in terms of value creation and regular financial results.

‘That said, a CFO must let go of their commercial and financial agenda to focus on creating successful partnerships and investments,’ McGaghey says. ‘This requires a more holistic approach.’

How CFOs Can Adapt From Leading a Finance Function to Leading a Company

While a CFO plays a partnering role, a CEO oversees all employees, stakeholders, and partners in a business. As a result, a CEO must develop and hone a strategic vision that aligns with several needs — and then execute this vision effectively.

‘Although the pace of change can be fast here, CFOs are often resilient,’ McGaghey says. ‘This resilience can help them develop confidence in their leadership decisions.’

A CEO with a CFO background must also step away from the finance function to focus on client engagement. They must strategise how the company can support its clients so they can improve customer experience.

‘A customer-centric, market opportunity-focused approach to these strategies can help a CFO successfully transition into a good-fit CEO,’ McGaghey says.

How New CEOs Can Manage M&A Processes

Having worked in global M&A for Unilever, McGaghey explains that corporate companies often use the M&A team, instead of the management team, to engage with buyers and sellers.

‘The M&A team may use structured processes to put space between buyers, sellers, stakeholders, and the business,’ he says. ‘This is important because individuals can get too close when buying and selling businesses.’

During M&A processes, some businesses take carve-outs personally, as though a carve-out is a rejection of the management team. But McGaghey encourages CEOs and senior management teams to take carve-outs as opportunities for redirection and new partnerships.

‘Sometimes a business isn’t the right fit for a group, and the group has to sell it,’ he says. ‘This can feel personal, but it’s not.’

‘The opposite can happen when it comes to acquisitions. When a company gets too excited about a target and decides to buy out the company, it may end up paying a hugely inflated price. In this case, management teams may prioritise achieving the cleanest process — acquiring a company with no strings attached — but this might not protect the company against all risks.’

Instead of the management team dealing with this process, an M&A team may be better placed to protect the company and identify the benefits and drawbacks of moving forward with the acquisition.

How CEOs Can Form Strong Relationships With Buyers and Sellers

‘Acquisitions are more likely to be successful when there is a good relationship between the selling CEO and the buying CEO,’ McGaghey says. ‘Even in listed businesses, where this is more of a formulaic M&A process, you need to build a positive relationship with the CEO of the target company. It’s essential to make the leadership team want to be a part of your business. Success in an acquisition process is not only about paying the highest price, especially for small businesses. It’s about the owners of smaller businesses feeling confident their business, particularly their people, won’t be swallowed into a multinational and rejected. They want reassurance that the buyer will preserve their business model and retain their team.’

‘Buyers need to believe in the seller’s management team and the story behind the business before they can engage in an offer,’ he adds. ‘First, they need to feel a connection and trust in the management team’s ability. As a seller, it doesn’t matter how much you spend on a glossy information memorandum or VDD report if you don’t make a connection with the buyer and the buyer doesn’t believe in the management team.’

By focusing on the softer aspects of M&A, new CEOs can improve internal alignment to motivate teams, build a personal relationship with the buyer, and secure a good price. This way, CEOs can improve their chances of avoiding auction processes and being up against other prospective buyers in a competitive process which drive up price irrationally.

‘Meanwhile, managing a joint venture can be much more difficult to achieve,’ McGaghey explains. ‘The main challenge arises from the fact that you can’t capture in the joint venture agreement the true essence of the relationship between two businesses. It’s the relationship that makes the joint venture work, not the contract. There needs to be mutual respect for the value that both parties bring to the joint venture. However, as the joint venture changes, the people will change too. And when personal dynamics evolve, the joint venture may become difficult to manage. A joint venture’s success relies on the relationship between the original two companies.’

How CFOs Can Develop Essential CEO Characteristics

McGaghey shares five strategies that CFOs can adopt to develop essential skills as CEOs.

1.  Focus on how you can craft a strategic vision for the overall company. To do this, you’ll need to develop a thorough understanding of the company’s market opportunities. This way, it’ll be much easier to align your products and vision to meet client needs.

2.  Develop a customer-centric approach that represents the company’s ethos and structure — apply this approach to all strategies.

3.  Uphold strong cultural values, like transparency and encouragement, that inspire and motivate the company’s employees.

4.  Realise the value of a great team. When a team works together successfully, the rewards should follow.

5.  Work on your resilience. When you can anticipate, accept, and solve challenges, you’ll be in a better position to lead a company.

Gary McGaghey’s Advice for CFOs Looking to Transition Into CEO Roles

McGaghey emphasises that CFOs who are looking to become CEOs need passion and ambition to make this jump. That said, CFOs are often well-positioned to take on such a role.

‘Many CFOs already have experience in client engagement, strategy, product lines, and operational understanding. Those who lack any of this experience should develop their knowledge before applying for a CEO role,’ he says. ‘Internal hires are common here, and a thorough knowledge of your company’s offerings can put you in great stead to make this transition.’

About Gary McGaghey

Gary McGaghey is an experienced CFO who has delivered large-scale organic and M&A-driven growth for listed, privately owned, and private equity companies in FMCG, beverage, pharmacy, and media sectors. He is currently the CFO of the €1.3 billion end-to-end marketing production services group Williams Lea, where he leads the company’s commercial plans and investment decisions. Previously, McGaghey has held leadership roles at Unilever, Nelsons, and Robertsons. He is also a chartered accountant and chartered management accountant.

Follow Gary McGaghey on Medium for more private equity insights

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