SURVEY: Just 4% of PE-Backed CFOs Keep Inherited Teams ‘As-Is’

July 20, 2020

New PE-backed CFOs often find inherited teams lack the expertise and horsepower to maximize return on investment.

That was among the key findings in a recent Vardis survey of over 1,250 North American private equity portfolio company CFOs.

  • Only 4% of PE-backed CFO respondents report keeping their inherited teams “as-is.”
  • 47% of respondents report “quickly” making changes to their team after being hired.
  • 76% of respondents report changes to their FP&A teams, while 74% report changes in Financial Control. Other concentrations of change include the Financial IT (48%) and Treasury (41%) functions.
  • When asked where they are most likely to invest during the coming 12 months, 55% of respondents indicated FP&A while 54% named Financial IT.
  • 45% of respondents reported annual revenues below $100 million and 22% reported revenues between $101-$250 million.

Operational improvement has become the dominant lever of LBO value creation amidst soaring transaction multiples and intense competition for deals.

PE-backed CFOs must act decisively on issues of human capital to position themselves for a profitable exit. Talent-deficient teams often monopolize a CFO’s time and fumble execution of their agenda.

Team building skills are especially vital in the lower-middle market where deals tend to focus on founder- or family-led companies with small or stagnant finance teams and less-than-robust processes.

“New CFOs inherit a team that has most likely never operated with an ERP system or generated reporting to a PE firm’s standard. The idea of accounting and finance providing analysis to empower better decision-making is often new to them — they previously focused on closing the books and fetching numbers for other departments only upon request. Therefore, upgrades at the Controller and Head of FP&A positions often occur quickly,” says Joe Gravino, Vice President at Falcon.

PE-backed CFOs who hesitate to take action on subpar performers inevitably regret their indecision. If a CFO is undecided on a particular employee, one best practice is to assign a specific project with clear milestones over the ensuing 45-60 days. The employee’s performance on this project serves as a de facto tryout for their current position.

A CFO’s team should be configured to shield any significant organizational or personal skill gaps. As sponsors increasingly tap CFOs with robust FP&A backgrounds, for example, demand for strong controllers has increased.

PE-backed CFOs must also consider how validation of the investment thesis changes the nature of a position over the duration of a hold. Strong executives seek ambitious reports capable of growing alongside the demands of a sponsor-backed environment. 

Falcon provides C-suite talent solutions for middle-market private equity firms across North America. Follow us on LinkedIn.