A finance chief who has run a company for fifteen years has closed roughly a hundred and eighty months of books. They have built budgets, managed lenders, survived audits, hired and fired accounting staff, and produced thousands of reports that people actually used.
In all of that, they have most likely never once been asked to define working capital in a legally binding document where the definition itself decides how much money ends up in the owner’s account.
That is not a criticism. It is a description of what the job contains. Operating finance and transaction finance overlap far less than the shared title suggests, and the gap between them tends to stay invisible until the one moment it becomes expensive.
Research from the National Center for the Middle Market found that among US middle market companies that sold in a three-year window, 46% were selling for the first time and only one in ten had significant prior experience with a sale. Most sellers are doing this once.
Source:
National Center for the Middle Market, Fisher College of Business, The Ohio State University
Why the Gap Exists
Start with the structural reason, because it explains why this is so common among genuinely excellent finance leaders.
M&A is episodic. Most privately held companies transact once, at the end, and a good number never transact at all. A CFO can spend an entire career at three or four such businesses and never sit through a transaction, not through any lack of ambition but because the event never arrived.
The National Center for the Middle Market found that roughly 20% of US middle market companies complete an acquisition in a given year, and about 5% sell or merge into another business. For most finance leaders, the event simply never arrives.
Source:
National Center for the Middle Market, Fisher College of Business, The Ohio State University
The career path reinforces it. The standard route runs through financial planning and analysis, then controller, then vice president of finance, then the top job. Every step in that progression develops operating competence. None of them touches deal execution, because deal execution is not part of running a company.
Even at businesses that do transact, the CFO frequently supports rather than leads. The banker runs the process. The attorney runs the documents. The owner runs the relationship with the buyer. The CFO produces schedules on request. Someone can be present for two transactions and emerge without having owned a single decision that mattered, which is why counting deals is a poor proxy for anything.
What Deal Experience Actually Consists Of
Ask what changes with experience and the honest answer is not “they know more accounting.” The accounting is the same. Three specific things change.
Knowing what information does after it leaves your hands
Operating finance produces information for people who want the company to succeed. Board packages, lender reporting, management dashboards. The instinct that develops over years of that work is to be thorough, transparent, and helpful, because in that context those instincts are correct.
Transaction finance produces information for a counterparty whose economic interest is to pay less. The same instinct becomes a liability. Not because you should conceal anything, but because there is a real difference between answering the question asked and volunteering the adjacent context that becomes a negotiating lever.
An experienced deal CFO reads a diligence request and sees two things: what was asked, and what the answer will be used for. An operating CFO reads the same request and sees a request. Both people are honest. One of them is also positioned.
The vocabulary that carries money
Deal structure has its own language, and the terms are not decorative. Each one moves cash.
Asset sale versus stock sale. Section 338(h)(10) elections and F-reorganizations. Escrow size and release schedule. Indemnification caps, baskets, and whether the basket is a deductible or a tipping basket. Earnout measurement periods and what happens to the metric if the buyer changes the business. Seller notes and their subordination terms. Rollover equity and what governs it. Working capital targets, collars, and true-up mechanics.
An operating CFO has no reason to know these, because none of them appear anywhere in running a business. But an owner sitting in a negotiation needs somebody on their side of the table who understands that a tipping basket and a deductible basket are different instruments with materially different exposure, and that the difference can be six figures.
Leverage decay
This is the one that costs the most and gets discussed the least.
Your negotiating leverage in a transaction is at its maximum immediately before you sign the letter of intent, and it declines from that moment forward. Before signing, you have or could have alternatives. After signing, you are typically in exclusivity, the other conversations have stopped, months of expense and effort are committed, and both parties know it.
Operating decisions do not behave this way. If a vendor contract turns out badly, you renegotiate at renewal. If a hire is wrong, you correct it. Operating finance trains you to believe that decisions can be revisited, and in that context the belief is accurate.
Deal terms harden. What you leave vague in the LOI gets resolved later, and later means during exclusivity, which means it gets resolved in the buyer’s favor. Not through bad faith. Through the ordinary physics of a negotiation where one side has an alternative and the other does not.
The practical consequence: the LOI is not a preliminary document. It is where the economics get set.
Where the Gap Opens Up
Four failure patterns account for most of the damage, and each one traces back to something in the section above.
The vague letter of intent is the most costly. An LOI that states a price and leaves the mechanics for later has deferred every question that determines what the price actually means. How is working capital defined and what period sets the target. What is included in the EBITDA the multiple applies to. Which balance sheet items count as debt-like. What size escrow, held how long, releasing on what schedule. Who bears which transaction expenses. An experienced hand insists on nailing these while alternatives still exist. An inexperienced one accepts that they are details to be worked out, because in operating life details do get worked out.
Over-disclosure is the second. A finance leader trained to be forthcoming will answer the question they were asked and then keep going, supplying context, caveats, and adjacent information nobody requested. Some of that context is genuinely helpful. Some of it hands the other side a thread to pull. The discipline of answering precisely and completely without volunteering is learned, and it is learned in deals.
Treating diligence as cooperation rather than negotiation is the third. The quality of earnings process feels like an audit, so it gets treated like one, with the CFO adopting the posture of a cooperative auditee. But an audit tests compliance with rules, while a QoE builds a position that will be used to price your business. Cooperating fully and defending your position are not in conflict, and someone who has been through it knows how to do both simultaneously.
Business drift is the fourth and most self-inflicted. Deals consume enormous management attention on a compressed timeline while the company still has to be run. A CFO who has not experienced that load underestimates it substantially, the business softens during the process, and the softening becomes its own negotiating problem. Buyers watch trailing performance during diligence for exactly this reason.
The Counterargument, Taken Seriously
It would be dishonest to write this without acknowledging the other side, because the other side has real force.
An outstanding operating CFO creates value continuously, every month, for years. Deal capability creates value once. If you have to choose between someone who will improve your margins by three points over four years and someone who is fluent in escrow mechanics, take the margins, because the margins are what get multiplied.
There is also a failure mode in the opposite direction. Finance people whose background is entirely transactional can structure a deal beautifully and have limited feel for whether the underlying business actually works. They know what buyers want to hear and less about what operators need to decide. That is its own gap, and it is not obviously better than the first one.
Then there is the reasonable question every owner asks: doesn’t my investment banker handle all of this?
Partly. A good banker runs the process, manages buyer outreach, and negotiates price and headline terms. A good transaction attorney drafts and negotiates the documents. Both are essential and neither is a substitute for financial ownership, because the banker is not going to build your normalized earnings bridge, defend your adjustment schedule line by line, model the working capital target across twenty-four months, or respond to two hundred diligence requests. Somebody has to own the numbers. If nobody does, they get owned by the other side’s analyst by default.
The realistic conclusion is not that every CFO needs deal experience. It is that somebody on your side needs it, and you should know clearly whether that person is currently in the room.
How to Actually Test for It
This is the practical part, and the first thing to fix is the question most owners ask.
“How many deals have you done?” is nearly useless. It invites a number and reveals nothing, because presence and ownership are entirely different things. The better opening is “what did you own?” followed by questions specific enough that only genuine experience produces a good answer.
Walk me through the last working capital target you negotiated. How was it calculated, what period did it cover, and what did you push back on. Someone who has done this will describe a methodology and an argument. Someone who has not will describe a concept.
What is the largest adjustment a buyer disallowed on a deal you were part of, and what did you do about it. Every experienced person has one of these and remembers it clearly.
What debt-like items have you argued about. This is a good filter because the list is idiosyncratic and the arguments are memorable. Anyone who has fought about accrued paid time off or deferred revenue treatment will light up at the question.
Have you managed a data room, and which platform. Small question, hard to fake.
And the best one: tell me about a deal that did not close. Anyone with meaningful transaction history has at least one that died, and they usually have views about why. A candidate whose entire deal history is clean successes has either done exactly one deal or is editing.
Red flags run in the other direction. Vague answers that stay at the level of principle. Frequent deflection to “we had advisors handling that piece,” which is often true and also tells you where the person actually sat. An inability to name specific mechanics. And experience that is entirely large-corporate, which matters more than people expect for reasons worth spelling out.
Not All Deal Experience Transfers
Three distinctions are worth making, because “has M&A experience” covers several different things.
Buy-side and sell-side are different jobs. A CFO who has completed acquisitions at a strategic acquirer knows integration, valuation discipline, and how to run diligence on someone else. Sitting on the receiving end of a diligence process is a different experience with different pressures, and the skills only partly overlap.
Corporate development experience is different again. Deal mechanics without operating ownership produces someone fluent in structure who has never had to run the business through the process while also selling it.
And company size changes the work substantially. Large-corporate M&A comes with an internal deal team, a dedicated legal function, audited financials, and established processes. Lower middle market transactions have none of that. The financials need building, the seller is the operator, the diligence is proportionally more invasive because the records are thinner, and there is no infrastructure to absorb the workload. Someone who has done six deals at a billion-dollar company may have less useful experience for a fifteen-million-dollar sale than someone who has done two at the right scale.
The specific profile that helps most is narrow: someone who has sat on the seller’s side of a quality of earnings review at a business roughly your size. That combination is rarer than the general phrase “M&A experience” implies, and it is worth asking about directly.
You Rent This, You Do Not Hire It
Which leads to a structural point about how to solve the problem, and it is mostly about arithmetic.
A business sells once. Hiring a permanent executive for a capability that gets used during a single eighteen-month window, at compensation that reflects deal experience, is a poor allocation of money for most companies in the lower middle market. The capability is expensive precisely because it is scarce, and you need it intensely and briefly.
The rational structure is to keep the operating finance leadership that runs the business well, and bring in transaction capability for the period surrounding the event. Sometimes that is a fractional or interim CFO with deal history. Sometimes it is a transaction advisory engagement. Sometimes it is an existing CFO paired with someone who has done this before and can carry the parts they have not.
What does not work is discovering the gap in week three of diligence, because at that point you are learning and negotiating simultaneously, and one of those activities is going to suffer.
The Bottom Line
The reason most CFOs have never closed a deal is that closing deals is not part of the job they were hired to do. The distinction only matters at one point, and at that point it matters a great deal.
What transaction experience actually provides is narrow and specific: knowing what your information becomes once it leaves the building, fluency in structural terms that carry real money, and an instinct for the fact that leverage decays from the moment the letter of intent is signed. None of that develops through operating excellence, however genuine.
So the question to answer honestly, well before it is urgent, is whether anyone on your side of the table has done this before. If the answer is no, that is a solvable problem with twelve months of runway and a difficult one with three weeks.
Where to Go From Here
If a transaction is somewhere in your next few years, the useful thing to establish now is where your current finance function is strong and where it has never been tested.
At Frak Finance, transaction experience is the specific thing we bring alongside operating finance work, from normalized earnings and working capital analysis through diligence management and letter of intent review.
Schedule a free consultation and we’ll give you a straight read on what your side of the table is currently missing.
