The Pulse

The State Of The PE Sponsor & CFO Relationship

Private equity-backed CFOs are more worried about job security than ever

A new Accordion Report identifies three key takeaways that threaten the CFO-Sponsor relationship; Provides a playbook to improve partnership. Read the full survey report here.

November 27, 2023 11:27 AM Eastern Standard Time–NEW YORK–(BUSINESS WIRE)–Private equity (PE) backed CFOs are more concerned about holding onto their jobs than ever before, according to a newly released survey by Accordion, the private equity-focused financial and technology consulting firm. Findings from the firm’s third biannual survey, The State of the PE Sponsor & CFO Relationship, reveal that a whopping 91% of PE-backed CFOs say that they are worried about job security, representing a 25% increase since Accordion first reported on the statistic in 2019.

What makes the finding even more startling is that PE-backed CFOs and their sponsors are generally more aligned on the role and responsibilities of the finance function than they have been in years past. The 2023 survey, which like the versions before it, polled 100 PE Sponsors and 100 PE-backed CFOs, found notable agreement between stakeholders as it relates to expectations of the CFO role and the extent to which CFOs are actually meeting those expectations:

Expectations for In-Seat CFOs:

  • Both CFOs and sponsors believe that it is the CFO’s responsibility not only to scale the business, but to play a leading role in driving enterprise-wide transformation (98% of sponsors agree, 100% of CFOs agree)
  • Both stakeholders agree that finance must incorporate more dynamic forecasting processes in order to effectively measure and run the business (100% of sponsors agree, 97% of CFOs agree)
  • In addition, both parties agree that CFOs actively understand the purpose behind sponsor requested reports, data, and KPIs (95% of sponsors agree, 100% of CFOs agree)

Actual Capabilities of the Current CFO:

  • In more good news, most stakeholders believe that the current CFO is effective in table-stakes planning and budgeting (78% of sponsors, 77% of CFOs)
  • While both stakeholders generally agree that the CFO is effective at scaling the business, CFOs are a little more confident in their abilities than are their sponsors (67% of sponsors, 72% of CFOs)
  • Additionally, both parties generally agree that CFOs are effective at utilizing value levers to achieve strong growth, with CFOs again giving themselves moderately better scores in this area (80% of sponsors, 92% of CFOs)
  • Interestingly, however, sponsors are far more confident in their CFO’s ability to run upside and downside scenario planning than are the CFOs themselves (79% of sponsors vs. 67% of CFOs) – that said, both generally agree on the efficacy of more recent scenario planning efforts.

The statistics beg the question: If CFOs and their sponsors are generally aligned, why are so many CFOs worried about their jobs?

“It’s because we’re experiencing novel fluctuations in interest rates, erratic equity markets, and sustained geopolitical conflict — and we have a generation of CFOs who had never led through anything resembling current conditions,” said Nick Leopard, CEO, Accordion.

Right now is the moment for CFOs to design a finance playbook to handle future integrations and synergies. If CFOs aren’t planning for a more acquisitive environment now, they may end up scrambling to incorporate multiple transactions at once...

In addition to concerns about job security, three key takeaways emerged from this year’s results. These themes serve as a roadmap for CFOs and sponsors to navigate through concerning cracks in that relationship.

1) Key Focus Faults

When asked which areas should be a key focus for the finance team going forward, sponsors placed M&A atop the list, while CFOs ranked it squarely at the bottom. Similarly, CFOs are disproportionately focused on cost-reduction relative to their sponsors. These findings suggest that CFOs may be too stuck in the here and now, and not strategically planning ahead for the economy on the horizon.

Added Leopard: “Right now is the moment for CFOs to design a finance playbook to handle future integrations and synergies. If CFOs aren’t planning for a more acquisitive environment now, they may end up scrambling to incorporate multiple transactions at once.”

2) Data (Un)Cleanliness

Data is important, but it’s table-stakes, and it’s only helpful to the extent it’s clean. While CFOs may overwhelmingly think their data collection efforts are strong (92%), only 65% of sponsors agree.

Said Leopard: “That’s a major fault-line waiting to fracture. Sponsors are relying on CFOs to mine data to inform actionable insights. If sponsors have concern about data cleanliness, it will no doubt hamper their confidence not only in the analysis of it, but in the CFOs making recommendations based on it.”

3) The Multi-Faceted CFO

It’s an area of alignment: Since 2021, twice as many sponsors and three times as many CFOs believe that PE backed CFOs should play a role in scaling the business and driving enterprise-wide transformation.

“That’s a good thing for those CFOs who want a seat at the value-creation table,” added Leopard. “But it is also a greater responsibility for an already over-burdened executive. To ensure CFOs can live up to these strategic expectations, they must be hyper focused on defining ‘transformation’ and align with both sponsors and other C-suite peers on what discrete actions to take and levers to pull in order to achieve desired outcomes outside of the finance function.”

Concluded Leopard: “By proactively addressing the potential fissures from these key takeaways, CFOs will not only become better stewards of enterprise scaling, they can also get in front of ANY narrative that’s driving their job security concerns.”

The survey was conducted with 100 private equity (PE) sponsors (senior executives) and 100 chief financial officers (CFOs) at private equity-backed companies with $50 million or more in annual revenue. The CFO and PE sponsor samples were collected between March 30th and April 10th, 2023.

 

 

 

About Accordion
Accordion is a private equity-focused financial and technology consulting firm. Rooted in a heritage of serving the office of the CFO, Accordion works at the intersection of sponsors and management teams to maximize value. The firm’s services span the entire CFO function – including operational and technical accounting, strategic financial planning and analysis, CFO-related technology, transaction execution, interim leadership, and turnaround & restructuring solutions. Across all of Accordion’s services, clients are supported by deep expertise in data & analytics, CFO-specific technology and finance-led transformations. Accordion is headquartered in New York with eleven offices around the globe.
For more information, please visit https://www.accordion.com/.