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Private equity (PE) funded organizations play a significant role in the global economy, often driving innovation, fostering growth, and transforming industries.

McKinsey’s Global Private Markets Review 2023 shows that PE deal volume reached a record high of $3.3 trillion in 2021, but the current uncertain economic environment with high inflation and high interest rates has had an impact on PE activity with deal volume decreasing 26 percent in 2022 to $2.4 trillion. Despite the decrease, this was still the second most active year for deal activity on record.

Macroeconomic uncertainties are challenging both the public and private markets, but PE will remain an integral source of funding. The need for PE continues to grow with demand from an increasing number of start-ups, intangible businesses such as those with ‘software as a service’ models, and other organizations that cannot access traditional capital from the financial services industry (for example because of banking regulations or high investment risk) or those being taken private from the public capital markets.

The world of PE is expansive, with PE funded organizations ranging from small founder led and fast-growing businesses, to more established and larger companies. The PE environment can be dynamic and exciting for finance and accounting professionals to work in, as well as rewarding with many opportunities to make a significant impact on a business in a short timeframe.

What is different about private equity funded organizations?

  • PE organizations are diverse in size, maturity, and objectives.
  • Usually have a shorter-term time horizon, with financial targets and an exit strategy to maximize its eventual sale value.
  • Funded by private shareholders, therefore less regulatory constraints, and more flexibility.
  • Focus on growth and efficiency, and not constrained by quarterly reporting requirements.
  • PE firms often invest in businesses that need to be transformed, or those going through rapid expansion.
  • Can be volatile, particularly those in the start-up phase, which may also lack established processes and systems.
  • PE firms can add value to the business beyond financial, including operational and governance guidance and support.

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:

PAIB Panel - PE funded CFOs
  • 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.

Key competencies and areas of experience to be a successful CFO and finance professional in a PE-funded company, include:

  • Stakeholder and relationship management – the CFO must manage relationships with various stakeholders, balancing stakeholder demands and expectations. The CFO often reports to both the CEO and the operating partner of the PE firm, and will typically be trying to align the aims and understanding of investors and the executive management.
  • Leadership and influencing skills – CFOs must demonstrate strong leadership skills and may have to make difficult decisions in the interests of the business and its ability to create value in the short and long term, so influencing skills are key to bringing others along the journey and to implement change management.
  • Strong prioritization skills – the CFO holds the authorization to make key decisions and must be decision oriented and able to make decisions at speed and strategically prioritize to navigate agendas. It is important for the CFO to influence big investments that are key to the resilience of the company. In addition, when a PE firm enters a business, it can bring both high risks and high rewards, which need to be carefully balanced when making decisions.
  • Talent management skills – in a fast moving or volatile environment, retaining and attracting good talent is important and a transforming business that is embracing digital and sustainability can be more compelling for potential employees.
  • Communication skills – the CFO must be able to effectively tell the value creation story of the business, without overselling, and communicate with executive management and investors on the key drivers of value and how these connect to the financials.
  • Technical skills – strong finance and accounting skills are needed, particularly as many of the CFO’s KPIs will be financial to maximize the value of the business when it comes time to sell (based on EBITDA x multiple), and smaller PE funded companies often require the implementation of robust processes and systems.
  • Deep knowledge of the business is essential. CFOs must take a long-term perspective, but they are also involved in day-to-day operations. The CFO engages with the PE firm on a regular basis and needs to be on top of everything that is happening across the business.
  • Previous experience in mergers and acquisitions and investments given some PE firms will be seeking potential mergers and investment ideas for growth.

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. 

Laura Takamizawa
Laura Takamizawa

Principal, IFAC

Laura Takamizawa is a Principal in IFAC's thought leadership team, focusing on initiatives in support of finance and accounting professionals working in business and the public sector. She was previously an Audit Manager at Grant Thornton, specializing in public sector audit in the UK, and prior to that worked for the Audit Commission. She also spent a year on secondment to the International Integrated Reporting Council (IIRC), where she was responsible for managing their public sector and business network programs.

Laura is a member of the Chartered Institute of Public Finance and Accountancy (CIPFA), and holds a Bachelor of Science (Hons) degree in Mathematical Physics from the University of Nottingham (UK).