vardis / private equity cfo survey page 1 · 2019-06-25 · vardis / private equity cfo survey page...

VARDIS / PRIVATE EQUITY CFO SURVEY www.vardis.com PAGE 1PAGE 1

/ N. AMERICA PRIVATE EQUITY

CFO SURVEY Q1 2019


/ Methodology: During January/February 2019 (following up on its Q4 2016 AND Q4 2017 surveys), Vardis contacted

the CFOs of more than 1,000 North American Private Equity Portfolio companies to review job content, differences

between Private Equity and traditional finance roles, compensation, and expectations. We appreciate the time and

consideration of those who responded.

/ Questions & further information: Should you have questions or want further information on this or Vardis’ other

surveys, including its annual Leadership surveys (conducted in conjunction with AlixPartners), please feel free to

contact a Vardis consultant in any of our offices at www.vardis.com.

VARDIS Q1 2019 PRIVATE EQUITY CFO SURVEY

/ About Vardis: Vardis is an international executive search firm focused strictly on portfolio company recruitment on behalf of Private Equity investors in North America, Europe and Asia (CEO, CFO, Board Directors, etc.) and in Pre-Deal situations through the introduction of Advisors, potential Board Members and Operating Executives.

/ Overview: We are pleased to share with you the results of our 2019 Private Equity CFO Survey.

As in our previous surveys, we explore compensation norms, investment and governance trends,

the relationship between CFO and PE investor, and the differences in the CFO role between public

and PE owned companies. This year, we also asked respondents to gaze into their collective

crystal ball and share their views on micro and macroeconomic issues.

http://www.vardis.com/


The more

things

change...

• 70% were previously CFOs, 48% previously CFO of a PE-backed company.

• 55% of CFOs cite their former CFO experience as the key reason for their selection

• Only 13% work with PE firms whose Operations Groups include CFO expertise

• “CFO base salaries up 6% over last year with total cash increasing by 17% for CFOs in

the $100-$500M revenue range

• CFOs report 2-3 new job approaches each month with those in companies with revenue

greater than $100M averaging 4-5 per month

• 40% describe their companies as “Highly Leveraged” including 70% of those with

revenues over $100M

• 71% have contact at least weekly with their investor with more than a third having multiple

contacts per week

• The career path is serial, episodic. 21% are in the first year with their company with 2/3 in

the same company less 3 years.

• Almost half are working in a different city from their previous role with half of these

commuting long distance from a remote home base.

• Over half of respondents expect an exit within the next 2 years

• CFOs perception of their investor’s average hold time has decreased from 60 to 47

months in the past year.

• While 39% of respondents indicate that their companies have underperformed the initial

investment thesis, 78% expect improved results in 2019 over 2018

• Expectations are not dampened despite awareness of potential economic, trade, political,

credit and regulatory challenges

/ SURVEY HIGHLIGHTS

PE CFOs

a breed

apart

Trends to

watch

Investors target

experienced CFOs to

de-risk investments

Demand for talent

outpaces supply

Pressure and Oversight

are different

Career expectations are

different

Hold times continue to

shorten

Expectations are sky-

high


/ THE PRIVATE EQUITY CFO

Experienced Specialists

• Less than 30% are first-time CFOs, almost half have previous PE experience

• Previous PE experience is cited as the most important hiring criteria, significantly

outpacing Industry experience (55% compared to 36%). Other criteria include;

exit experience and other specialized skills such as Operations or Transformation

Private Equity DNA™

• Comfortable with close oversight - 71% report at least weekly contact with their

investor with 35% reporting multiple contacts per week

• Comfortable with leverage – 60% describe their company’s debt as “very low” or

“average” despite average debt multiple of 4-5X

Agents of Change/Transformation• FP&A Drives Transformation and Decision Support. Two-thirds have

supplemented their FP&A teams already and half plan further FP&A adds in 2019

• Multiple respondents urge Boards to hold management to account, drive change

“CFO Plus”• “Numbers just the starting point. Commercially and Operationally astute.

• Over half also lead HR, Legal, IT and one-quarter are responsible for other

functions such as Supply Chain, Operations, Customer Services, Purchasing

Confidence & Sober Optimism• Despite 39% of companies underperforming the initial investment thesis, 78% of

CFOs expect stronger YOY results in 2019 with 29% expecting “much better”

• CFOs identify various risks on the horizon – including US recession -- but more

than half are confident of a liquidity event in 24 months, 83% within 48 months


/ THE PE INVESTOR / CFO RELATIONSHIP

PE Investor and Portfolio

Company CFO “joined at the hip”

CFOs have generally positive

views of their investors

Though generally positive, they

can identify areas for

improvement, including...

Don’t put all your eggs in a single

basket

• 71% of CFOs have at least weekly contact with their investors, more than twice as often as CEOs

• 73% of PE Investors view the CEO and CFO dynamic as “essential” to delivering investment

results

• CFOs score the relationship with their PE Investors as “7.75” on a scale of 1 – 10

• CFOs cite M&A, Strategy Development as the areas where their investors are Most Helpful

• Recruitment, Team Assessment/Development, and Strategy Implementation as areas where

they are cited as Least Helpful

• Greater support from other PortCos – networking, best practices, sourcing, introductions

• Clearer, more frequent communication to management of expectations and exit plans

• “More room to breathe”, “less micromanagement”, “more listening”

• Operating Partners “who understand our business”

• 57% of CFOs indicate they have no internal successor and only 13% of those surveyed indicate

that their PE investors have finance specialists within their Operations group

• There is a shortage of experienced talent. The average CFO in a Company of $100M or more is

getting 4-5 new job approaches each month

• 45% of respondents indicate that senior finance recruitment took far longer than anticipated


/ TRENDS WORTH WATCHING

Talent Shortage Driving

CFO Comp Increases

Corporate Performance

Improving

Clouds on the horizon -

cirrostratus or cumulus

Hold Times Getting

Shorter

Debt Levels Rising

• Average base salaries up 5.7% and expected bonus up 17% over last year

• Middle market (revenues $100-$500M) total comp up 17% from last year to $448k

• Talent shortage – Where do we go for untapped talent?

• 51% of CFOs expect an exit within the next 24 months

• Median expected hold for companies with revenues greater than $100M shorter by 10%

from last year to 47 months

• Exit to a financial buyer expected in 41% of the exits, an increase of 30% since 2016

• Only 39% of companies underperformed their initial investment thesis in 2018, down from

51% in 2017

• 33% of companies outperformed their initial investment thesis in 2018, up from 27% in 2017

• One-third of CFOs expect further improvement in 2019 with 14% expecting “much better”

• Debt markets continue to be strong

• Median leverage 5X EBITDA with average higher than 6X for companies > $100M revenues

• 80% of loans are “covenant lite” at B2 or below, nearing norms of 2007 peak

• The tight “employment market” is cited by 65% of CFOs as a point of concern

• Debt markets cited by 36% of respondents

• Trade policy & tariffs cited by 35%

• Other points of concern include Brexit, M&A multiples, potential for a slowdown, and a

sentiment shared by a number of respondents best captured by one; “My company has

been acquired and sold twice. Expectations are astronomical. I don’t see how it can last.”


/ CFO CASH COMPENSATION BY COMPANY REVENUE

232 251 246 241 266 264299 302

266 264326 346 338

376 377 394438 452 469 467

86 73 8748

106 121128

59 106 121

17177

152

211 188 173

202 208

332 353

0

100

200

300

400

500

600

700

800

900

2016 2017 2018 2018Public

2016 2017 2018 2018Public

2016 2017 2018 2018Public

2016 2017 2018 2018Public

2016 2017 2018 2018Public

2016 – 2018 Annual Cash Compensation (X$1,000) for PE Backed Companies

Base Bonus

$100M-$250M<$100M $250M-$500M $500M-$1B $1B-$5B


/ SURVEY RESPONSES


My investor does not have a dedicated portfolio

operations group or operating executive organization.

My investor has a team of former operators that serve

as board members of the firm's portfolio companies.

My investor has an internal operations group which

works closely with its portfolio companies.

My investor has an internal operations group that

includes finance and accounting experts who play

an active role in its portfolio companies.

13%

22%

25%

41%

7% 8%

41%36%

9%

Early Stage/Start Up

Late Stage/Growth

Lower MiddleMarket

($25M - $200M)

Middle Market($200M - $1B)

Large Cap($1B+)

12%

54%

22%

13%

VentureCapital

GrowthInvestor

Buy Out Turnaround/Distressed

6%

44%

46%

5%

More than 7 years

5 - 7 years

3 - 5 years

Less than 3 years

/ SURVEY RESPONSES: SECTION I, INVESTOR PROFILE

Your investor's investment style can best be described as:

Your investor’s typical hold period is:

The size companies in which your investor

typically invests are best described as:

Which of these best describes your investor's operations model?

1 2

3 4


Domestic - less than 15% of revenue and

operations outside of NAFTA region.

International - between 15 to 30% of revenue

and operations outside of NAFTA region.

Global - more than 30% of revenue and

operations outside of NAFTA region.19%

13%

68%

Which best describes your Company?7

/ SURVEY RESPONSES: SECTION II, COMPANY PROFILE

What is your Company's annual revenue? How many employees at your Company?5 6

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Less than$100M

$101M -$250M

$251M -$500M

$501M -$1B

More than$1B

Less than 100

101 - 500

501 - 1000 1,000 -5,000

More than 5,000

0%

5%

10%

15%

20%

25%

30%

35%

Less than100

101 - 500 501 -1000

1,000 -5,000

More than5,000



Where is Company Headquarters? What industry best describes your Company?8 9

22%

4%

16%

18%

16%

9%

1%

8%

6%

Business Services/Financial Services

Industrial Services

Technology

Manufacturing

Distribution/Transportation

Healthcare

Retail

Consumer Products/Services

Other

23% 24%19%

16%12%

5%

Northeast Southeast Midwest Southwest West Coast Other


More than 6times

4 to 6 times

2 to 4 times

Less than 2times

0.00% 10.00% 20.00% 30.00% 40.00%

Very low

Average debt level for the business and industry

Aggressively leveraged


How would you describe your Company's level of debt?For its most recent reporting period, what was the

approximate multiple of debt to trailing 12 months EBITDA?10 11


Looking forward to 2019, how will operating results compare to

2018 results?

51%

8%

41%

Trade Sale/Strategic Buyer Public Offering Another PE Investor

7%

32%27%

19%14%

Much lowerthan expected.

Somewhat lowerthan expected

As expected. Somewhat betterthan expected.

Much betterthan expected.


29%

22%

31%

17%

Within the next12 months.

12 to 24 monthsfrom now.

24 to 48 monthsfrom now.

More than 48months from now.

How have operating results and value creation

compared to the initial investment thesis?14

What is the most likely exit for your current investor? When do you anticipate an exit?12 13

15

1%4%

18%

48%

29%

Much worse than in2018

Somewhat worsethan in 2018

Similar to 2018 Somewhat betterthan 2018

Much better than2018


I was already here

I knew the investor

I knew the CEO

I was recruited based on industry experience

I was recruited based on previous private equity experience

Prior Private Equity "Exit" experience

Prior IPO experience

Public Reporting Experience

"Big 4" Accounting Experience

Other (please specify)

I was CFO of a private equity backed company

I was a CFO of another company

I was a corporate finance executive (e.g. Corporate

Controller, Treasurer, etc.) in a private equity backed company

I was a corporate finance executive (e.g. Corporate

Controller, Treasurer, etc.) in another company

I was a divisional CFO of a private equity backed

I was a divisional CFO of another company 14%

2%

8%

5%

22%

48%

/ SURVEY RESPONSES: SECTION III, CFO ROLE

What were the key factors in your hiring? (check all that apply)

67%

60% 58%

40%

21% 21%

IT Legal HumanResources

Purchasing Supply Chain Other(please specify)

Other than finance & accounting, what other roles report to you?

(check all that apply)16 17

What best describes your previous experience?18

Most Common

“Other” responses;

• Administration

• Facilities

• Operations & Sales

Operations

• Data Analytics/”Big

Data”

13%

15%

12%

7%

28%

55%

36%

14%

14%

21%


20%

5%4%

Multiple timeseach week.

Once perweek.

2 to 3 timesper month

Once permonth.

Less thanonce

per month.

36%

14%

33%

25%

25%

28%

36%

47%

69%

37%

53%

44%

61%

47%

42%

22%

28%

49%

14%

31%

14%

25%

22%

31%

3%

Leverage

Quality/Size of Team

Board Involvement

Reporting

Pace of Change

Lender Involvement

Cash Management

Expected Knowledge of Detail

No Change Different Significantly Different


If this is your first experience in a Private Equity backed company, how does it compare to your previous role in the following categories?

On average, about how often do you

have contact with your investor?19 20

35%


38%

14%

55%

46%

12%

45%

46%

41%

44%

36%

18%

41%

4%

10%

52%

Strategy implementation

Strategy development

Team recruitment anddevelopment

Team assessment

Identifying and assessingM&A opportunities

Not Helpful Somewhat Helpful Very Helpful


Generally speaking, how helpful is your investor in…How would you rate your working relationship with your investor

(from 1-10)?21 22

0

Poor

5

“Okay”

10

StrongReported

= 7.75

What else could your investor be doing to support you (open

response)?23

Focus on Strategy

Push Harder/Be More Aggressive

More Capital

Stronger Operations Group

Communicate Expectations

Breathing Room/Don't Micromanage

Share Best Practices Across PortCos


69%

24%

38%

32%

41%

36%

42%

FinancialControl

FP&A M&A Audit &Risk

Tax Treasury SharedServices

FinancialIT

6%

2%

52%

33%

6%

I didn't needto make any

changes.

I didn't makeany changes

but should have.

I made changesquickly.

I made changesgradually.

I made change too slowly.


After joining your current employer and assessing your team,

which statement is most accurate in retrospect?

In what areas have you made changes to your team since taking your

current role? (Check all that apply.)24 25

76%



If you have made changes to your team, how would you rate…Looking at your current team, how did they join the Company? (Check all

that apply.)26 27

Length of time required tofill the role

Compensation packagefor new hires

Overall quality of newhires

Overall quality ofcandidate pool

Worse/Lower Than Expected

As Expected

Higher Than Expected

Much Higher Than Expected

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

InternalPromotion

Previous Overlapwith you or

investor

Formal search,internal recruiter

Formal search -external recruiter


34%

52%

39%

11%12%

19%21%

34%

FinancialControl

FP&A M&A Audit &Risk

Tax Treasury SharedServices

FinancialIT

57%

16%

10%

4%13%

No Internal Successor

Internal Promotion/Coaching

Previous Overlap with you orInvestorFormal Search - Internal Recruiter


If you have an internal successor, how did he/she join the Company?In what areas are you mostly likely to invest during

the coming 12 months? (Check all that apply.)28 29


Less than one year

1 -3 years

4 - 6 years

More than 6 years


How long have you worked for your current organization?30

0% 5% 10% 15% 20% 25% 30% 35% 40%

Higher by 20% or more

Higher by 5 - 20%

About the same

Lower by 5 - 20%

Lower by 20% or more

How does your current cash compensation

(base & target bonus) compare to your last role?32

My current position is in the same city

as my former role.

My current position is in a different

location and I relocated.

My current position is in a different

location. I maintained my previous

residence and "commute" on a weekly

or periodic basis to the new location.

24%

24%

54%

Which of the following best describes your situation;31


/ SURVEY RESPONSES: SECTION IV, CFO COMPENSATION –

BASE SALARY

36%

19%20%

10% 10%

3%2%

Up to$250,000

$251,000 -$300,000

$301,000 -$350,000

$351,000 -$400,000

$401,000 -$500,000

$501,000 -$600,000

More than$600,000

What is your current base salary? (Overall distribution and median and mean by revenue)33

0

50

100

150

200

250

300

350

400

450

500

< $100M $100-$250M $250-$500M $500M - $1B >$1B

Mean Median



ANNUAL TARGET BONUS (PERCENTAGE OF BASE)

6%

21%

17%

24%

10%

7%

16%

Up to 20% 21 - 30% 31 - 40% 41 - 50% 51 - 60% 61 - 70% Over 70%

What is your current target annual bonus? (Overall distribution and mean/median by revenue.)34

0

10

20

30

40

50

60

70

80

< $100M $100-$250M $250-$500M $500M - $1B >$1B

Mean Median



EXPECTED BONUS (PERCENTAGE OF BASE)

22%

19%

17%

14%

6%

9%

13%

Up to 20% 21 - 30% 31 - 40% 41 - 50% 51 - 60% 61 - 70% Over 70%

What do you expect your actual annual bonus to be this year (for 2018, paid in 2019)? (Overall distribution and mean/median by revenue.)35

0

10

20

30

40

50

60

70

< $100M $100-$250M $250-$500M $500M - $1B >$1B

Mean Median



BASE CASE EQUITY

14%

12%

23%

21%

2%1%

8%

18%

Up to$500,000

$500,000 -$1M

$1.01M -$2M

$2.01M -$3M

$3.01M -$4M

$4.01M -$5M

$5.01 -$7.5M

More than$7.5M

If your equity delivers against the expectation of the investment thesis, what gross proceeds (000’s) do you expect at exit? (Overall and mean/median by revenue)36

0

1000

2000

3000

4000

5000

6000

7000

< $100M $100-$250M $250-$500M $500M - $1B >$1B

Mean Median


/ SURVEY RESPONSES: SECTION IV, CFO COMPENSATION – EQUITY

NoYes, less than one

year's base salary

Yes, more than one

year's base salary

Did you invest your own capital in the Company? How does your equity vest?37 38

How do you perceive your remuneration

package compared to the market?39

Time based only

Time based with acceleration at liquidity

Performance based (e.g., above a performance threshold) only

Performance based with acceleration at liquidity

Blend of time and performance

Blend of time and performance with acceleration at liquidity 36%

9%

4%

3%

36%

12%

28%

60%

12%

I believe I am below market I believe I am at market I believe that I am above market

3%

62%

27%

7%1%

None 1-2 per month 3-5 per month 6-10 per month More than 10 permonth

How many new CFO job opportunities are presented to you by investors or

recruiters in the average month (whether or not you “take the call”)?40


65%

19%

31%

36%

31%

68%

67%

58%

4%

13%

2%

7%

Employment Market

Regulatory Environment

Trade Policy

Debit Markets

Negative Impact No Impact Positive Impact

/ SURVEY RESPONSES: SECTION V, CFO PERSPECTIVE

How do you anticipate the following will impact your business in 2019?41 What other outside factors do you anticipate will affect your

business in 2019? (Listed include all those scoring 5% or higher)42

Brexit

China/Trade Policy/Tariffs

Election Results

Overall Economy

Energy Prices

M&A Multiples/Market

Credit Markets


NEW YORK

250 Park Avenue, 7th Floor, New York,NY 10177, United States

+ 1 212 572 6311

LONDON

The Gridiron Building, One Pancras Square, London, N1C 4AG, United Kingdom

+44 20 3651 7770

FRANKFURT

Großer Hirschgraben 15

60311 Frankfurt

+49 69 247 55 83 60

/ VARDIS

HONG KONG

Level 19, Two International Finance Centre,8 Finance Street Central, Hong Kong

+852 2251 1739

DALLAS

100 Crescent Court, 7th Floor Dallas, TX 75201, United States

+1 214 459 2792

BOSTON

800 Boylston Street, 16th Floor

Boston, MA 02199, United States

+ 1 857 453 6598

vardis / private equity cfo survey page 1 · 2019-06-25 · vardis / private equity cfo survey page...

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