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How PE CFOs create value through all five stages of the investment lifecycle

Private equity CFOs are central to every stage of the investment lifecycle, setting priorities and spotting opportunities to maximize exit value.

Three questions to ask

  • Are CFOs starting their quest for value early enough?
  • Can CEOs hit their value targets fast enough?
  • Is the finance function unlocking value through cross portfolio collaboration?

Private equity chief financial officers (CFOs) play a key role in creating value throughout the investment lifecycle, from pre-deal assessment and due diligence to post-deal integration and exit. Their ability to grasp the granular detail while also keeping an eye on the big picture makes them both drivers of operational excellence and key strategic partners.

But it’s a demanding role. From the starting line of the deal to the exit point, private equity CFOs are up against the clock to meet tough targets and maximize investor returns. Achieving these goals is more critical than ever, given the current economic environment of high inflation, rising interest rates and geopolitical tensions. With their relentless focus on cash flow and costs, as well as their ability to spot opportunities and deliver business-critical information, private equity CFOs are increasingly being recognized as the hidden heroes of private equity whose ultimate mission is to maximize exit value.

Successful PE CFOs take these steps toward creating value at each of five different stages:

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    1. Starting early in the quest for value prior to deal

    The private equity deal team, in collaboration with the finance team, plays a crucial role at the outset of any deal. Their work begins with a market assessment, including strategic analysis and portfolio review, opportunity analysis, business modeling, tax structuring, financial due diligence and valuation. The next step includes establishing a target valuation and purchase price considerations, including transaction structuring. Given that private equity is a leveraged funding structure (as every CFO will most likely need to refinance the business at least once during the investment cycle), managing liquidity and optimizing the capital structure is also critical to value creation and plays to another key CFO strength.

    From a due diligence standpoint, the finance team must assist in venturing above the gross margin line (income statement) to evaluate the sales and marketing operations, confirming alignment on key business drivers. The team needs to assess the viability of the revenue stream by understanding where and who the customers are and how the firm, business and products are perceived by their customers. This assessment then needs to be reflected in the firm’s projections and subsequent valuation. 

    Potential value creation opportunities at the portfolio company level are also explored at the due diligence stage. After the deal, the new portfolio company CFO will be mandated to uncover and exploit untapped opportunities across the cash and liquidity landscape as well as establishing the appropriate cost optimization strategy for building resilience and providing longer-term success.

    2. As day one dawns, establishing priorities and setting a rapid pace

    Before the day of the deal, finance teams need to transition quickly from pre-deal diligence to a rapid diagnostic and transparency stage. This includes navigating whether the company is designated as standing alone or being integrated into a larger portfolio. As a key first step, a CFO should verify that the operations, sales, marketing and IT teams all understand the investment case and are aligned accordingly.

    The private equity CFO must also take rapid action to embed robust and insightful reporting to accurately measure the underlying performance against the relevant key performance indicators (KPIs) that will empower management in making optimal data-driven decisions. Reliable forecasts, proper governance structures and controls also need to be established prior to day one.

    CFOs then need to get into a rhythm — typically within the first 100 days — of continuously assessing, monitoring and forecasting business drivers by reviewing and evaluating options as market conditions change. They must also provide transparency and alignment across the business. Effectively utilizing technology is essential. For instance, EY teams identified opportunities for efficiency savings of 40% for a global shipping and marine services portfolio company after conducting an assessment and end-to-end process review across its finance operations.

    3. At the mid-stage, driving growth, integrating and rightsizing

    At the mid-stage, the focus is on scaling the portfolio company and hitting forecasts while maintaining strong control over finances and having the flexibility to quickly take remedial actions if required. A first step includes defining and implementing a rightsized target operating model in line with the investment and targeted ROI. This includes the proper employment and deployment of people, processes and technology.

    Attracting, developing and maintaining talent is critical. The EY 2023 Private Equity Survey found that talent management was the top strategic priority for companies of all sizes — aside from growing the business. Creating the right mix of incentives is an essential part of this. Furthermore, removing silos between portfolio companies and finance teams can provide effective talent utilization and help retain the best employees by providing intellectually challenging and career-expansive opportunities.

    Technology is an increasing focus for CFOs as automation not only helps them to keep pace but also supports growth and improves control. For this reason, CFOs are increasingly taking the lead in the selection and implementation of systems technology.

    Tax strategies are integral to value creation, from complying with regulations to unlocking value from optimal structuring. CFOs are integral to answering these questions:

    • Is tax technology properly implemented to drive efficiencies and to generate helpful tax information?
    • Are internal and external tax function costs in line with the market?
    • Do the employees and any third-party advisors have the right skill sets?

    At the same time, the CFO must verify that its tax function is “rightsized” and focuses on the technical tax needs of the business.

    At this stage, finance teams must be focused on maximizing EBITDA and improving working capital to create and substantiate the story that maximizes ROI on exit. This includes clarity on revenue and cost drivers, such as KPI monitoring by bringing a due diligence lens to the firm’s financials. Developing an evolving M&A strategy (with add-ons) to create revenue and cost synergies can be another important value creating lever, particularly when credit markets are tight, restricting large leveraged transactions.

    4. Unlocking the value of cross-portfolio collaboration

    Through discussions with clients, EY teams have found that many funds are not fully connecting the dots between their portfolio companies. For instance, funds often do not share insights and opportunities across their portfolio companies, even if they operate within the same sector. This is a significant value creation opportunity that often gets overlooked, largely due to organization structure and because siloed teams limit their focus to direct responsibilities. With one foot in operations and the other in strategy, plus a seat at the top table, the private equity CFOs are ideally placed to bridge that gap.

    However, teams will need to be properly incentivized and challenged to collaborate and reach out across the fund structure. Technology can play a critical role; while certain operations and data collection activities can be shared or centralized as part of the back office, having critical insights and opportunities effectively communicated across teams requires a focused effort. Again, CFOs can lead the way.

    5. Preparing for departure and maximizing exit valuation

    The CFO plays an essential role in identifying and formulating exit strategy scenarios. While the initial investment may have been made with a certain holding period and exit strategy in mind, the CFO must be constantly attuned to changing economic conditions and opportunities for securing a successful exit and maximizing ROI. Additionally, some scenarios may require additional infrastructure. A public offering, for instance, requires the buildup of processes and procedures, including investor relations and external reporting. 

    In preparation for an exit, the firm’s story and numbers need to be aligned with the targeted exit option. Finance teams also need to set a balance between stretch and realistic financials. Six to nine months before a target exit, CFOs should already have a deal team mobilized, working in full force with a watertight story and supporting data, including preparation for diligence.

    Environmental, social and governance (ESG) reporting is another consideration for maximizing ROI on exit. Having the proper reporting of metrics in place and providing the expected level of transparency can help support a premium valuation. While ESG may not be considered as the number one priority for CFOs, it is a topic that has gained traction and is increasingly looked for across the private equity landscape in making investment decisions.

    Private equity CFO reimagined

    The role of the PE CFO has changed dramatically in the past decade and is constantly evolving. Above all, CFOs are highly valued for the impactful guidance they can provide. However, depending on the company’s size, they are also valued for their ability to assess strategic transaction opportunities, assist in fundraising processes, run stress test scenarios, and oversee the implementation of new technology.

    CFOs have become pivotal in steering a private equity company toward successful outcomes. The scope of their challenges and responsibilities may now be much more diverse, but the ability to unearth and deliver on new value creation opportunities is the common thread running through those activities and making successful private equity CFOs stand out.


    CFOs and the finance function have become more pivotal in steering private equity companies toward more successful outcomes. The CFOs that stand out are those with the ability to unearth and deliver on new value creation opportunities.

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