global private equity cfo vardis / survey june 2019 · / overview: we are pleased to share with you...

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

/ GLOBAL PRIVATE EQUITY CFO SURVEY JUNE 2019


/ Methodology: During Q1 2019 (following up on its Q4 2016 AND Q4 2017 surveys), Vardis contacted the CFOs of more than 1,500 Private Equity Portfolio companies worldwide 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 2019 GLOBAL 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...

• 60% were previously CFOs, 44% previously CFO of a PE-backed company.• 54% of CFOs cite their former CFO experience as the key reason for their selection• Only 14% work with PE firms whose Operations Groups include CFO expertise

• “CFO base salaries up 6% over last year with total cash increasing by 16% 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

• One-third describe their companies as “Highly Leveraged” including 50% of those with revenues over $100M

• 64% have contact at least weekly with their investor with more than a quarter 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.

• Almost half of respondents expect an exit within the next 2 years, N. American hold expectations significantly shorter than Rest of World

• CFOs perception of their investor’s average hold time has decreased from 60 to 47 months in the past year.

• While 45% of respondents indicate that their companies have underperformed the initial investment thesis, 79% expect improved results in 2019 over 2018, 32% “much improved.”

• 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 one-third are first-time CFOs, 44% have previous PE experience• Previous PE experience is cited as the most important hiring criteria, significantly

outpacing Industry experience (54% compared to 35%). Other criteria include; exit experience and other specialized skills such as Operations or Transformation

Private Equity DNA™• Comfortable with close oversight - 64% report at least weekly contact with their

investor with 27% reporting multiple contacts per week• Comfortable with leverage – 45% describe their company’s debt as “very low” or

“average” despite average debt multiple of 4.5--5X

Agents of Change/Transformation • FP&A Drives Transformation and Decision Support. Three-quarters 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 45% of companies underperforming the initial investment thesis, 81% of

CFOs expect stronger YOY results in 2019 with 32% 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, 81% 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

• 64% 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” despite the potential impact on results

• 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”

• 56% of CFOs indicate they have no internal successor and only 14% 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

• 43% 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 (currency adjusted)

• Middle market (revenues $100-$500M) total comp up 17% from last year to $428k• Talent shortage – Where do we go for untapped talent?

• 46% 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

• 45% of companies underperformed their initial investment thesis in 2018, down from 55% in 2017

• 28% of companies outperformed their initial investment thesis in 2018, up from 24% in 2017• 79% of CFOs expect further improvement in 2019 with 32% expecting “much better”

• Debt markets continue to be strong• North American debt levels significantly higher than companies outside of N. America• Median leverage 4X 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 63% of CFOs as a point of concern• “Trump” tariffs & trade policy cited by 38% of respondents as a point of concern• Brexit cited by 41% as a concern (70% of EU respondents)• Other points of concern include M&A multiples, potential for economic 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

232 251 248 241 266 264 285 302 266 264 312 346 338 376 364 394 438 452 482 46786 73 79 48

106 121 105 59 106 121125 77

152

211152

173202 208

251353

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.

14%

20%

25%

41%

7%12%

39%35%

7%

Early Stage/Start Up

Late Stage/Growth

Lower MiddleMarket

($25M - $200M)

Middle Market($200M - $1B)

Large Cap($1B+)

11%

55%

20%14%

VentureCapital

GrowthInvestor

Buy Out Turnaround/Distressed

N. America

Rest of World

Rest of World

< 3 YEARS

3-5 YEARS

5-7 YEARS

> 7 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.

25%

14%

61%

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 - 10001,000 -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

23%

3%

11%

15%

12%

9%

8%

7%

10%

Business Services/Financial Services

Industrial Services

Technology

Manufacturing

Distribution/Transportation

Healthcare

Retail

Consumer Products/Services

Other

65%

9%

8% 3% 3%

1%

10%

N. Amer

ica UK

Europe

- EU

Europe

- Othe

r

Mid-Ea

st/Afr

ica

S. Ameri

ca/C

aribb

ean

Asia Pa

cific


Very low

Average debt level for the business and industry

Aggressively leveraged


How would you describe your Company's level of debt (global)? How would you describe your Company’s level of debt (by region)?10 10

Very low

Average debt level for the business

and industry

Aggressively leveraged

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

Rest of World

N. America

Rest of W

orld

N. Americ

a

Rest of W

orld

N. Americ

a


>6X EBITDA

4-6X EBITDA

2-4X EBITDA

<2X EBITDA

0.00% 10.00% 20.00% 30.00% 40.00%

Rest of World

N. America

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

< 2X EBITDA 2-4X EBITDA 4-6X EBITDA >6X EBITDA


For its most recent reporting period, what was the approximate multiple of debt to trailing 12 months EBITDA (global)?

For its most recent reporting period, what was the approximate multiple of debt to trailing 12 months EBITDA (region)?11 11


53%

10%

39%

Trade Sale/Strategic Buyer Public Offer ing Another PE Investor


22% 25%

34%

20%

Within the next12 months.

12 to 24 monthsfrom now.

24 to 48 monthsfrom now.

More than 48months from now.

When do you anticipate an exit (by region)?13

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

28%23%

31%

17%

7

27%

41%

25%

N. America Rest of World


Looking forward to 2019, how will operating results compare to 2018 results?

12%

33%

27%

16%

12%

Much lowerthan expected.

Somewhat lowerthan expected

As expected. Somewhat betterthan expected.

Much betterthan expected.


How have operating results and value creation compared to the initial investment thesis?14 15

2%4%

15%

47%

32%

Much worse than in2018

Somewhat worsethan in 2018

Similar to 2018 Somewhat betterthan 2018

Much better than2018


I was already hereI knew the investorI knew the CEOI was recruited based on industry experienceI was recruited based on previous private equity experiencePrior Private Equity "Exit" experiencePrior IPO experiencePublic Reporting Experience"Big 4" Accounting ExperienceOther (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 companyI 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%

4%

12%

5%

15%

44%

/ SURVEY RESPONSES: SECTION III, CFO ROLE

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

65% 65%

48%

41%

20%

25%

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• Bus. Dev and M&A• Sales Operations

19%17%

15%35%

54%26%

8%12%

19%15%


27%

25%

8%

3%

Multiple timeseach week.

Once perweek.

2 to 3 timesper month

Once permonth.

Less thanonce

per month.

37%

16%

26%

26%

32%

28%

35%

44%

63%

36%

44%

42%

56%

42%

32%

21%

26%

48%

30%

32%

12%

30%

33%

35%

11%

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%

11%

57%

49%

11%

50%

48%

38%

42%

42%

15%

41%

5%

9%

39%

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…21 What else could your investor be doing to support you (open response)?22

Focus on Strategy

Provide Feedback/Decisions Quickly

Build Relat ionships Throughout Team

Push Harder/Be More Aggressive

More Capital

Stronger Operations Group

Communicate Expectat ions

Breathing Room/Don't Micromanage

Share Best Practices Across PortCos


74%

23%

41%

36%

42%39%

44%

FinancialControl

FP&A M&A Audit &Risk

Tax Treasury SharedServices

FinancialIT

7%4%

47%

36%

7%

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.)23 24

76%



If you have made changes to your team, how would you rate… If you have an internal successor, how did they join the Company? 25 26

Length of time required tofill the role

Compensation packagefor new hires

Overall quality of newhires

Overall quality ofcandidate pool

Worse/Lower Than ExpectedAs ExpectedHigher Than ExpectedMuch Higher Than Expected

56%

16%

10%

4%14%

No Internal SuccessorInternal Promotion/CoachingPrevious Overlap with you or InvestorFormal Search - Internal RecruiterFormal Search - External Recruiter


Less than one year

1 -3 years

4 - 6 years

More than 6 years


How long have you worked for your current organization?27

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

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?29

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%

26%

50%

Which of the following best describes your situation;28


/ SURVEY RESPONSES: SECTION IV, CFO COMPENSATION –BASE SALARY

44%

19%17%

8% 7%

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 in $USD? (Overall distribution and median and mean by revenue)30

0

100

200

300

400

500

600

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

Mean, N. America

Median, N. America

Mean, Rest of World

Median, Rest of World


/ SURVEY RESPONSES: SECTION IV, CFO COMPENSATION –ANNUAL TARGET BONUS (PERCENTAGE OF BASE)

8%

24%

18%

21%

10%

5%

14%

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.)31

0

10

20

30

40

50

60

70

80

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

N. American Mean Rest of World Mean


/ SURVEY RESPONSES: SECTION IV, CFO COMPENSATION –EXPECTED BONUS (PERCENTAGE OF BASE)

24%23%

18%

11%

5%

7%

12%

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.)32

0

10

20

30

40

50

60

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

N. American Mean Rest of World Mean


/ SURVEY RESPONSES: SECTION IV, CFO COMPENSATION –BASE CASE EQUITY

18%

14%

21%

19%

4%

2%

7%

15%

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)33

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, < 1

year's base salary

Yes, >1 year's base

salary

Did you invest your own capital in the Company? How does your equity vest?34 35

How do you perceive your remuneration package compared to the market?36

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 29%

10%

3%

11%

29%

18%

38%

52%

10%

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”)?37


63%

27%

32%

30%

31%

60%

64%

62%

6%

13%

7%

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?38 What other outside factors do you anticipate will affect your business in 2019? (Listed include all those scoring 5% or higher)39

Brexit

China/Trade Policy/Tariffs

Election Results

Overall Economy

Energy Prices

M&A Mult iples/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 1560311 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 FloorBoston, MA 02199, United States

+ 1 857 453 6598

global private equity cfo vardis / survey june 2019 · / overview: we are pleased to share with you...

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