To further explore these opportunities, IFAC’s Professional Accountants in Business (PAIB) Advisory Group convened a panel of PE-funded company CFOs. Sanjay Rughani, PAIB Advisory Group Chair, and CEO of Standard Chartered Bank, Uganda, moderated the discussion between:
- Dado Alonso Sanchez, Group CFO, BBG
- Murat Çağlar, CFO, Sanovel
- Edward Guest, COO/CFO, Unlimited
Key insights from their discussion are summarized below.
The value of a CFO in a PE-funded organization
The CFO in a PE-funded organization is typically appointed by, and represents, the PE fund, and can often take on a chief operating officer role in addition to CFO responsibilities. The CFO is a critical and highly valued central figure because they play an important strategic role in helping the business to transform, grow, and create value for key stakeholders to maximize valuation for an eventual sale. The timescales can vary but typically a small to mid-sized PE investment could be 3 – 5 years, and a larger investment 5 – 7 years, which gives CFOs a relatively short time to increase profitability, and have an impact on the business, both in terms of financial and ESG considerations (given that investors and prospective buyers also consider the sustainability performance of companies).
PE firms look to the CFO to
- Ensure the financial stability and performance of the business and prevent value erosion.
- Provide trust and confidence in the state of the business and its financials. They must ensure there are no surprises, which requires transparency about any issues in the business and working with the PE fund to find solutions.
- Establish and maintain good corporate governance practices to make sure the business is being well run including aligning all key stakeholders to common goals and targets.
- Bring efficiency to operations through digital transformation and managing key risks.
Although the PE environment can be dynamic and exciting, it can also be pressured with high expectations. If a CFO does not perform well, they can be easily replaced by the PE fund. But for those who do well, and are trusted, there can be many opportunities for future roles in other organizations funded by the firm, or in other PE-funded organizations.
Ethical considerations and challenges
CFOs must manage internal conflicts, balancing the interests of the business with the interests of the funders. These are often aligned, but there could be potential conflicts, for example a push for a short-term strategy that maximizes exit value, but which may be detrimental to the longer-term success of the business.
Even when an exit is planned in a short time horizon, the CFO has a responsibility to consider and take decisions that are best for the long-term sustainability and resilience of the business. Balancing this with the short-term nature of PE funding can mean for example ensuring certain investment decisions are made early in the investment cycle and not just before exit. The CFO must make sure the business is on a solid footing before sale so that there are no surprises during the buyer’s due diligence process.
Opportunities for finance and accounting professionals in PE-funded companies
PE funded organizations can provide unique opportunities for finance and accounting professionals to work in dynamic, fast paced and rapidly growing businesses that are often transforming industries.
Exposure to the PE world can provide useful experience for accounting finance professionals. It demands dedication with a steep and intense learning curve, but for those who choose a career in a PE-funded company the benefits include:
- Peer learning in a collaborative, energizing environment
- Good compensation tied to exit performance
- Opportunity to help run a business and grow in leadership
- Continuously acquiring new skills and knowledge beyond finance
- Contributing to value creation and value protection, and ensuring sustainable growth and long-term integrity of the business
- Creating lasting networks and relationships.
Explore more insights from the PAIB Advisory Group.