What Two PE Exits Taught James About Winning as a CFO

In this episode, host Alex Rawlings welcomes James Carver, a seasoned CFO with two private equity-backed exits under his belt. James shares his unique journey from the trading desk to executive leadership, and unpacks valuable lessons from navigating complex M&A deals, ESOP sales, and private equity integrations.

⏱️ Episode Highlights

00:00 – Intro & Background
James shares his career path from stock analysis to FP&A and investment banking before stepping into CFO roles.

05:22 – Transition to Corporate Finance & First Exit
How James helped scale a medical distributor from $30M to $65M, leading to a PE-backed strategic sale.

08:47 – Second Exit in Charlotte
Turning around a struggling portfolio company and leading it through a successful 2024 exit.

09:51 – Common CFO Hiring Mistakes in PE
The importance of SOPs, process infrastructure, and cross-functional alignment.

12:13 – Strategic Focus: Quote-to-Cash & Customer Experience
Mapping key processes to maximize customer lifetime value and ROI.

13:35 – Value Creation Before Exit
Driving growth through territory expansion, sales team optimization, inventory efficiency, and acquisitions.

17:26 – Exit Lessons
Why having no advisor in his first sale was a challenge—and how having one in the second made a big difference.

21:17 – Acquiring Smaller Businesses
James’ playbook for building trust with founders, being transparent, and respecting their culture post-acquisition.

25:37 – Final Advice
Embrace best practices from acquired companies—don’t force your way if theirs is better.

26:32 – Resources
James recommends the Wall Street Journal and CNBC to stay sharp on market trends.

27:28 – Contact
📧 Reach James: jim_carver59@yahoo.com

Raw Selection partners with Private Equity firms and their portfolio companies to secure exceptional executive talent. We focus on de-risking executive recruitment through meticulous search and selection processes, ensuring top-tier performance and long-term success.

🔗 Connect with Alex Rawlings on LinkedIn: https://www.linkedin.com/in/alexrawlings/

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Transcript

00:00
Welcome back to the Royal Selection Private Equity Podcast. Joining us today is James Carver, an experienced private equity backed chief financial officer with two exits under his belt,  both selling to private equity. He's going to share with us the lessons learned, the experiences he had  during those  exit processes.  James, share with us a brief insight into you,  Thank you, Alec. So  I've had  a somewhat unique

00:29
An interesting journey through the world of finance. Since graduating in college, graduated from John Carroll University in Cleveland, Ohio was  vast stock market  and analyzing companies  and thought that I wanted to be a portfolio manager. So my first job out of college was actually  on a grading desk or a high net worth money managing firm. Eventually working my  way up to a, working portfolio managers at the company to kind of trend in that direction.

00:59
However, growing up in the nineties, you know, you had this meteoric rise in the stock. You know, the internet was still really in its infancy. You had this new  ability for individual to actively manage their own money, which broke that traditional, you know, stockbroker investor relationship. And there was just so much money flooding into the market. You, you had this internet bubble with the time they didn't, they kind of knew it was really, you had this internet bubble forming.

01:29
Um, and that coupled with, you know, those who are old enough to remember the Y2K software was going to crash and the world was going to come to a technological end on, on midnight at the year 2000, which thankfully didn't happen. So shortly after that, you know, I experienced the late 1999 rise early 2000s and then the subsequent burst of the bubble, you know, watching a lot of the amazon.coms.

01:58
And, and the Microsoft's and, know, lot of the RFMD micro systems, lot of those technology stocks either drop 90 % in a lot of them, you know, going out of business. And then you had the right after that, you had the unfortunate events of nine 11, which not only impacted the market, but impacted the global economy and just how we view things. You know, in general, and it just compounded what.

02:27
What already had really busted when it, when that technology bubble busted, and then you had the subsequent Gulf war, is a result of nine 11. you know, watching individuals lose 30, 40, even 50 % of their net worth. Based off of, you know, no real bad investment decisions. It was just, it was just a, a, an unfortunate series of events that happened really woke me up.

02:57
And I decided that, you know what, you know, I love the market. I love analyzing businesses, but you know, managing money really isn't for me. So I decided to go back to school  and, you know, try to get into investment banking and mergers and acquisitions. You know, you think about mergers and acquisitions versus managing a portfolio of stock per individual. There's a lot of, you know, lot of overlap. When you're looking at an acquisition or you're looking at a stock to buy, know, look at Warren Buffett.

03:26
You're doing very similar type analysis. You're digging into core fundamentals of a business  and you know, the discounted future cash flows. What does that look like? How does that look like? So you've had that same type of analytical prowess going on there, but it was a little, it was a little different. was corporate versus individual. So I went to Pepperdine university for my MBA. When I graduated, I went to work for a middle market investment bank based out of New York.

03:56
But I was fortunate. did a summer internship with them and I actually joined two weeks after they opened their Los Angeles office.  And at the time it was just me and a man and director and where most  summer associates and summer analysts spend their time, you know, standing in front of, sitting in front of spreadsheets  for 12 hours a day.  I was actively able to get exposed to a lot of the financial community in Los Angeles.

04:26
as we were going out and trying to pitch the business to the private equity firms, the accounting firms and the law firms. In fact, part of my job, in addition to working on deals was to set up those meetings and accompanying the manager director to those meetings. So it was a very unique experience that I would say the majority of  interns do not have the opportunity to experience. After the summer,  asked, I would continue on during the school year.

04:52
which I did, you know, 20 to 25 hours a week. And then after graduation went to work with them full time. Um, after three years, got, got a little burned out of the grind as, as, as some bankers do and went to work for a customer who was a nutraceutical manufacturer, also based in California. Doing two things really supporting buy side M &A and supporting the CFO on FDNA, comically and ironically enough, I had never actually

05:22
heard the term before, so I was supporting with budgeting and supporting the manufacturing and all of the internal financial modeling. But it's funny when I first started doing it, I didn't realize that was actually called FDNA.  so interestingly enough, after six months of being there, we ended up selling the business to an international strategic buyer that was looking to use our distribution channels to bring their product to the United States. So my primary focus switched from.

05:49
You know, being split between M &A and FP &A to just FP &A. And  about two years after the acquisition, that CFO went to move to a larger company. was a global toy manufacturer. He brought me over with me to be the director of a global head of FP &A. And this is really where I got a lot of exposure and a lot of discipline around that FP &A function. spent five years  working with the CFO, reporting directly to him.

06:19
working with the international finance teams, managing the budget, building financial models and doing a lot of that day-to-day FP &A work. After five years, I went to a smaller company looking to kind of get more into the build  of a company. I wanted to get into a smaller company where I could have an impact and bring all those tools I'd learned in my seven years doing FP &A for larger companies into a smaller company and help, you know,

06:48
drive growth, spent two and a half years in a led manufacturer in Southern California, really professionalizing the finance function, raising some capital,  working my way up. was my first senior financial professional role. I did a VP of finance. I was a de facto CFO. Unfortunately,  the company hit some turbulent times and then ended up moving to Minnesota to take my first CFO job at a medical equipment distributor.

07:17
that also had a clean room division and an air compressor sales and service division. Really professionalized the finance function and collaborating with the current executive team to help build the business. We built the business from, you know, 25, 30 million to 60, 65 million over the course of five years. The business was an ESOP. And, you know, for those of you who don't know about ESOPs, essentially

07:47
Over time you accumulate shares and the longer that you're there, the more, the more shares you accumulate in the higher value, those shares become every year you have to do a valuation and over time as the company grows, that valuation grows. So by the time I got there, you had a uh longer tenured employee base that had a meaningful amount of shares.  And, know, through the internal discussions, we felt the best way to monetize that was to actually

08:17
sell the business. Interestingly enough, we were approached by a strategic buyer who was private equity backed. And this actually led us to my first liquidity event that I ran as the CFO. We started that process in early of 2022. We closed the transaction in July of 2022. I worked with that team on the integration. And then I had a recruiter reach out to me for a company in Charlotte, North Carolina.

08:47
who was looking for a CFO, there was a portfolio company who had um some struggling financial situation. So they brought me in to help clean up the financials and help lead the company that ended up turn around and take it through an exit, which brought me to my second exit. Spent the first eight months working with the CFO, partnering with the CEO to help prepare the business, turn around the business and get ready for an exit. um And then hiring Southside.

09:16
advisory, both investment bankers and Q of E. And then taking the company to market. We had a strategic buyer approach us in the spring of 2024. Closed a deal in July of 2024. Spent the next eight months working with their executive team on integration. And then I decided to take a step back and do a personal and professional sabbatical, which brings me to where I am today. Roger, the insight. What's one of the mistakes that you see

09:45
private equity firms or their portfolio companies making and what would you suggest to correct them?

09:51
Not necessarily as much portfolio companies.  And I think these two kind of go hand in hand. um I'll start off by saying, hiring a CFO without having the proper processes and procedures in place or not planning to put the processes and procedure in place and having that CFO end up spending the majority of their time digging into spreadsheets, diving into closed processes,

10:21
putting out fires on a daily basis.  Obviously there's always going to be fires that need to be put out. That's part of the CFO's job.  This can be really corrected by building a standard operating procedure across the entire organization,  starting with the finance function and surrounding yourself with good people that will allow you to focus on the more strategic side of the business.  It also allows you to work

10:51
with the functional area leaders. I know it's some organizations that I first started out of, I, you know, I walked into situations where the finance organization did not have very good relationships with the individual functional area leaders. And this has created problems around the organization because nobody understood what the left can really didn't understand what the right hand was doing. so.

11:17
building that operating procedures manual, working with the functional leaders drives processes and procedures and creates a foundation to help drive growth forward. You know, if you're going to, you're a $50 million company and you hire a CFO and you don't have a good foundation in place, you know, you could have the greatest strategic initiatives in the world, but they're never going to work because people, people are going be focusing on things that aren't, you know,

11:44
He's growth driven and they're going to be trying to do too much, but if you can get them to focus on those three to five items that will drive growth and  drive that strategic initiative forward, the company will be in a much better off place. How have you typically come to which of the three to five? Cause I know when we look at constraint focus, what moves the needle the most return on investment,  what have you done that's allowed you to have the decision  to have the data that drives the decision making?

12:13
That means you're on the right path. So before you, before you build the strategic or before you build the state or operating procedure, you know, you like to map out the quote cash process and you like to map out the customer experience.  within that quote, the cash process, you know, you sit down with the functional leaders and you say, what are, what are the key processes of procedures that drive the most, that maximize the customer experience?

12:40
And what you can do is you can do that across all of the functional areas from the quote to the hash selection.  you look at  those  actions, you look at those functions that drive the best customer experience.  you can value,  you want customers to spend the most amount of money they can, it's a lifetime, maximize that lifetime value of the customer, which  drives.

13:06
You  ROE and ROI on your investments.  you, you kind of start big picture mapping out the quote to cash. You take that as your blueprint for your standing operating procedures.  And if you, if you align that with your customer experience and what, what, what action items really aligned to provide the best customer experience, you end up driving the, you know, that lifetime customer value up  and driving ROI and ROE. Makes sense. So let's spend.

13:35
obviously a part of today diving into your experiences when you operated last two roles, as you mentioned, both went through to a liquidity event. So let's kick off with the kind of largest value creation projects that you worked on, which were the ones that had the largest impact on the exit multiple? Well, at NCI, you know, we were a distributor. We had a clean room division. We had a sales and air compressor sales and service division. And so, you know, the

14:04
Distribution, the distributor business really made up about 35 to 40 % of our business. we really had no, we had control to a certain extent and it was really driven. Value creation was really driven by  the relationship with the primary manufacturer, receiving territory expansion, hiring good salespeople. know, it was always team, you know, medical equipment.

14:31
is a niche, a very niche industry and it's very difficult to find good salespeople. you know, to understand the market, to understand the business, you know, you don't necessarily, you have to have a most of us science background that understands the functionality and how labs work and how, how that process works also can sell. you have a unique mix  of personality and talent around that, you know, but a lot of growth came out of the clean room division. And we had a very good head of sales who really drove that business and it was identifying, okay.

15:00
When is it E to hire somebody?  What value,  what sales level do you need to bring in another sales rep to be able to pass some accounts on so you can take  and you can take on new customers.  because you  your sales reps can only take on so many customers at once. So we did a really good job at identifying those things from an operations standpoint, you know,  managing inventory better, making  inventory more efficient.

15:28
making shipping and receiving more efficient, making purchasing more efficient. We also did an act, buy side acquisition. We acquired a Borescope inspection device. So there was, it was a combination of organic  and uh acquisitive growth that helped drive the business.  And  what specifically, you mentioned about the supply chain inventory. What specifically did you do to make those improvements? We had a really good operations manager and we worked  on, you know,

15:59
Taking the inventory management system label, making the, the way the structure of the air inventory area more efficient. people, was when I got there, inventory was really kind of a mishmash around. was no logic behind it. And we really kind of organized it and structured by, by skew and by customer. And it made things more efficient. We also had part of our, the challenging part about managing inventory, particularly for our air compressor sales and service was our.

16:28
our  sales techs had vans and so know figuring out ways to manage inventory on the vans because  it's really difficult to track so you know we made sure historically speaking we never really did the annual inventories with the with air compressor cell division we made sure that you know we always did periodic inventories on those vans to make sure that you inventory was tight and the very... Sorry to interrupt, just a quick mention of a long-standing partnership with Grata.

16:57
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17:26
And given the two exits, what were the lessons you learned from both of them that you wish you knew as you're approaching the first? So, interestingly enough, being a small product, Esau, we did not have any self-taught representation.  so,  we went into it.  I had been in investment banking, I'd been through M &A before, so I had an idea of what the process looked like, but I had never gone through it by myself. um

17:56
And, know, there was really  nobody that kind of guide us through the process. Me being a first time CFO, the rest of the executive leaders had  had sales backgrounds. And while they had some M &A experience because the company had acquired processes previous to us, you know, they really hadn't gone through the sale process before. So a lot of that was on, on me. And so it was me navigating blind, you know, what to say, what not to say, you know, how to position the numbers, how to position the story.

18:26
And it was, it was very, very, very challenging, know, lying blind, not having that third party guidance of somebody who had done it before. And while I had done it, um, the other thing I will mention, this is extremely interesting and unique to ESOP. So when it ESOP gets bought, either a two types of acquisitions, can do equity, equity, equity, or an asset sale with an ESOP. you do an equity sale, trustees of the ESOP.

18:56
can actually vote and they can have a third party independent person validate the value to kind of keep, you know, checks and balances in place. However, for an asset sale, all shareholders have to vote on the transaction before it closes. And so if you've ever gone through M &A, the most stressful thing is how employees are going to react. That post acquisition first meeting to say, you know,

19:24
Congratulations guys, are not, we've now been sold by XYZ. This had to actually be done three to four weeks prior to the close of the transaction. So not only were we managing to quality of earnings and diligence, which really run up through the day of the close of the transaction. You now had to do people side of things and you had to manage the temperament throughout the organization.

19:50
You know,  manage emotions, manage nervousness, you know, am I going to have a job? What's going to happen to us?  And, know, reassure all the employees that this was best for the company. Thankfully we had a hundred percent approval on the vote  of the ESOP. The integration went very well. Nobody lost their job. In fact, we actually ended up hiring some people.  Um, and so, you know, that was a, a, a great learning experience. So going into the second acquisition, you know, we did have sell side representation.

20:20
Which helped out a lot because you had those extra resources to help bounce ideas by and you, had people on site and you could talk through things and you could strategize. And that really, really, really helped position the company well to get through that a lot more smoothly. And there was, it was somewhat less stress. And the second one, because not only because I had been through one before, but we had that buffer between us and the sellers that they could kind of field questions and say, okay, and then come to us and we.

20:49
you know, kind of strategize on how, how that response works. you know, if possible, and I know it's not always possible because, you know, advisors can be expensive. You know, it's, it's, if you're going through your first sale, it's always helpful, especially if you're, know, in that 50, $60 million range where there's going to be a quality of earnings analysis done, it's always helpful to have some sort of a third party advisor kind of help you guide you through that process, especially if you've never been through one before. Okay. And.

21:17
You also completed five acquisitions in your last role. Those range from revenues from 1 million to 15 million. So on the smaller side, which brings a lot of complexity is there  even less professionalized in the business you're in. What was the biggest challenge that you faced during that phase and how did you overcome it? The biggest challenge that is always the relationship  in easing the nervousness of the seller. And so, you know, if you'd be...

21:46
You know, we had a very, very good process in place. We had a gentleman who had, you know, 20 years experience in the legal industry. He was our,  you know, quote unquote, shaking hands and kissing babies kind of guy. He'd go out and shake hands and, and,  and,  and, you know, talk to people and he did cover the businesses. And, know, we had a template that we put together that he would use as kind of a foundation, you know, is this the type of business this is, does this fit our core?

22:16
metrics on a type of business that we're looking for to acquire. if it all fit all those criteria, then, then there would be an initial meeting with himself and myself.  And that initial meeting was always,  you know, be as transparent as possible and not only walk them through what the acquisition process is going to look like, but also  walk them through what the post acquisition process is going to look like, how they fit into the organization.

22:45
how their employees fit into the organization. And if you do that early on, you ease those, you ease the pain  of the, my God, everybody is going to lose their job. Cause our investment thesis, you know, we acquired businesses based off of the people and the business that they built. You know, we weren't looking to buy businesses and replace management and bring somebody else in. Cause these were, these were, you know, smaller businesses who the owners and the founders.

23:14
typically had a lot where that were the faith of the organization.  so a lot of times, you know, we asked the, we, we, you know, part of the sales tactic was to have them stay. You know, over the course of the next two years or even further in the case of the, of the large organization that we acquired  to make sure that, you know, the business didn't go south. And so, you know, that really, really, really  having that, that starting point where you make them feel comfortable.

23:43
Make them feel welcome and, know, having them give you their input to make them feel like their opinion is valued and they're going to have, you know, at the end of the day, you have to do what's best for the company, but, know, always asking for their opinion, making sure they're a part of the process. And this, this isn't just, you know, you're going to do what we tell you to do. And this is the way it's going to be, you know, it's more of a collaboration between the owners of the business you're purchasing and us. And, you know, having weekly meetings, having update calls.

24:13
And,  the most important being transparency. You know, if you tell somebody you're going to do something, you know, three or four weeks down the road, don't do something different. You know, things change unexpectedly and that happens, but don't, don't throw curve balls or else  you lose, you lose your credibility, that relationship building transparency and getting the owners and company involved early helps that post acquisition.

24:38
meeting with the employees because they can champion the acquisition and they can stand in front of the organization and say, look, I've just spent the last two months working with these guys. are truly a great group of guys and you should trust them. in fact, there were two of the acquisitions that actually chose lower valuation to go with us because of the way we ran our acquisition process  rather than be acquired by a larger competitor, just because they did not like the way acquisitions were handled by them.

25:09
Okay. What, what particularly did they really like about what you guys did here that made you attracted? The culture and the openness and the fact that, you know, we, we weren't looking to bring them in  and just, you know, say, okay, this is the way it's going to be and you're going to do it our way. know, it happened, you know, lot of times you acquire a business and they do things better than you do.  And.

25:37
There are times when the larger company, in spite of the fact that the smaller company does things better, they're going to make you adopt their ways. One of the things we like to do is if you're doing something better than us, you know, why, what are you doing? Why, why are you doing it? Maybe that's something we should adopt on our side. Instead of having you say, you know, you're going to do things our way. If you're doing things better, you know, what, let's take a look and see the way you do things. There's something we can change on our side to make.

26:05
You know, the combined organization, you know, better. So it was, it was the culture. It was the fact that we embraced,  embraced their culture and we embraced their company and we didn't really bring them in and say, Hey, look, you know, you're going to do things our way, you know, just get out of our way.  We're driving the bus, not you. Okay. What is, what are the things you read, watch, listen to, do you recommend to this check out, please? Uh, you know,

26:32
I, I'm a big Wall Street journal guy. I read the journal every day.  I still think it brings a lot of  value. They do a good job covering the news. You know,  I, I've worked in hybrid jobs and I also, I also like to listen to  market news on television. I'm a, I'm a big CNBC fan. I usually like to have that on the background, just hear from a macro standpoint, what's going on. You know, I still have that love for the financial markets, even though, you know, while I'm not directly.

27:01
Indirect, I'm indirectly still involved. still like to know what's going on, interest rates, commodities, oil, you know, those things all drive businesses  and knowing what's going on on a day to day basis, you know, impact your business depending on, know, if you're manufacturing  business that relies on precious metal, precious metals are up, you know, how many golds, silver up in  great amount over the last 12 months. And so you're being able to listen to what the markets are doing.

27:28
on a real time basis, you know, really helps educate yourself and keeping you on top of what's going on. Perfect. And if anybody wishes to reach out to you post this podcast James, how best to get in touch please? My email  is jim underscore harver59 at yahoo.com. Well, Jim, thank you very much for coming onto the podcast today, sharing all your insights from your two private equity bats exits.

27:56
and the journey you went on with both of them. Appreciate you coming on the podcast. Well, thank you for having me on Alex, it was a pleasure. And as of course, thank you very much to all our listeners. Till the next time, keep smashing it.