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When companies receive private equity investments, CFOs start polishing their resumes. In a spring 2023 survey from consulting firm Accordion, 91 of the 100 CFOs surveyed said they became more concerned about their job security after their companies secured private equity funding.
One reason why may be that CFOs and private equity sponsors have different priorities. The 100 sponsors surveyed named M&A the second-biggest area of focus for their finance teams in the near future, but CFOs ranked it last. Conversely, CFOs named cost reduction as their finance teams’ second-largest priority going forward, but sponsors listed it second-to-last.
“There’s increasingly more misalignment between the sponsors and the management teams, because there’s a whole generation of CFOs now who’ve never dealt with as volatile an environment as we see now,” Nick Leopard, founder and CEO of Accordion, told CFO Brew. “With that, there is a lot of misalignment on…the key priorities to create value.”
These results suggest that sponsors are looking ahead to growth while CFOs are more concerned with the current economic moment, Accordion’s experts said in their report on the survey. Sponsors, they wrote, feel they have “done the cost reduction phase” and moved on. They recommend that CFOs at private equity-backed companies learn how “M&A is part of the sponsor’s plan for value creation,” so they’re not caught flatfooted when sponsors want to make deals.
Private equity sponsors are looking to CFOs to add more than just the usual accounting practices to potential deals, and expecting them to think more strategically, Leopard said.
“So being able to not just execute an M&A transaction, but then to have a really well-honed integration playbook, which involves both cost reduction and revenue acceleration, the synergies around that, and then beyond M&A as a key priority for boards and private equity sponsors, the other thing is CFO-led transformation,” he said.
Tech priorities differ: CFOs and sponsors were also misaligned on technology, the survey found. CFOs named enabling technology as their finance teams’ top priority going forward, but sponsors ranked it fifth. Sponsors were also less confident than CFOs in their companies’ data: Only 65% of sponsors said their CFOs met expectations in terms of making data “clean and reliable,” versus 92% of CFOs. And just 17% of sponsors said their CFOs did “extremely well” at transforming data into insights.
“In our work with PE-backed CFOs, we find that data is almost always an issue,” Accordion’s experts wrote. They recommend that CFOs not “give up the fight for data” but instead inform sponsors about the ROI good data can bring, and frame investments in technology as a way to improve sponsors’ exits.