Insights

The role of the PE backed CFO

Maximising value on exit

Based on over 130 interviews with Private Equity investors, CEOs, Chairmen and CFOs, our latest Private Equity (PE) backed CFO research explores the CFO’s impact on value creation and influence through the exit process.

Our research comes as more CFOs look set to undergo a change in ownership in the next two years and as the total value of private equity-backed exits in Europe has more than doubled over the last two years – driven largely by opening exit markets and rising confidence. Our interviews with business leaders across multiple sectors, both in the UK and globally, revealed six key roles that the CFO has to play in the quest to maximise value on exit.

The bullish CFO

CFOs are feeling increasingly bullish when it comes to market conditions, and they should feel confident in their ability to influence value and achieve a successful exit:

  • 94% of CFOs feel that the market is either very or moderately attractive for an exit
  • One-third of the CFOs interviewed consider themselves “close to exit” at this time
  • 59% of CFOs expect a multiple of 10 times or higher, while one in six expect above 13 times.


The credible and articulate CFO

The best CFOs play a proactive role in helping potential buyers get to grips with their business, clearly articulating the drivers for growth:

  • PE investors, CFOs, Chairmen and CEOs consider high quality management information to enable decision-making as the most important tool that CFOs can use to positively impact EBITDA
  • Respondents recognise that there is a skill to articulating the business model and providing strong, credible evidence which supports the growth story, in order to give investors the confidence to pay a premium for the business
  • The way in which the entire management team presents itself to potential investors is crucial – the story needs to be articulately told, and style and presence makes a big difference.
     

The detailed CFO

PE investors expect the CFO to stay close to the detail and deliver the basics – accurate numbers. However, CFOs often have a desire to move away from the detailed day job, and into the role of business strategist:

  • Almost half of the CFOs interviewed believe a key way they can positively impact EBITDA is through the “formation of business strategy”
  • Yet only 4% of PE investors feel that CFOS should consider forming business strategy as a key part of their role
  • It is important to strike the right balance between stewardship and strategy. If a CFO can master the stewardship role and, in addition, is able to contribute to the strategy of the business, then they can be central to delivering value.

The collaborative CFO

Placing the lens on exit value highlights two pivotal relationships – firstly with the CEO, closely followed by the PE investor:

  • An effective CEO/CFO team is highly valued by Chairmen and CEOs, but the relationship does not always come naturally according to CFOs
  • PE houses are often in more frequent contact with the CFO than the CEO, so CFOs need to be proactive, responsive, accurate and transparent in their dealings with their investors.
     

The forward thinking CFO

Successful PE backed CFOs should have an exit mind-set from ‘day one’:

  • PE investors and management teams agree that forward-thinking towards the exit can make a tangible impact upon value.
  • There are two main approaches to exit-readiness: A defensive approach, protecting against value leakage, and a positive approach, achieving value creation through a strong and understandable investor story
  • The strongest CFOs act as the conscience of the business, maintaining focus on core operations and identifying the areas which will really deliver value at the exit.
     

The resilient CFO

CFOs need to be on their game and deliver consistently in order to maximise value in the run up to the exit:

  • A change in ownership is considered one of the most demanding periods in the career of even the most experienced PE backed CFOs
  • An underperforming CFO adds tangible risk to the exit – both in terms of the value achieved and indeed whether a deal completes at all. 
  • CFOs advise their peers to prepare for an exit by tapping into support networks, surrounding themselves with strong people and looking after themselves.

 

“The CFO is the glue – involved in everything and the point person throughout the exit.”
CFO

“Often the CFO understands the business drivers but does not articulate them in the most attractive manner.”
PE investor
  

“If the numbers slip during the process, you lose credibility, and lose competitive tension. The day job is very important during the exit process”
CFO
 

“The CFO is like a centre back in football – they are independent but part of the team. The CFO needs to be focussed on the good of the company and at times can conflict with the CEO, therefore they need a strong backbone.”
Chairman

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