/ OVERVIEW: We are pleased to share with you our sixth annual PE CFO Report. As in our previous years, we asked about PE CFOs for their perspective on compensation, governance, the relationship with their investors, and the differences in the role under PE ownership. We have also asked our participants to gaze into their crystal balls and provide their outlook on the likelihood and potential impact on their companies of macroeconomic events and trends.
VARDIS 2022 PE CFO SURVEY TRENDS WORTH WATCHING.
/ BASE COMPENSATION CURVE FLATTENING
For other than the Lower Middle Market (sub-$100M), the CAGR for CFO cashcompensation has normalized in the 4% range
Cash is “progressive,” with increases more likely included in performance bonus
Equity grants continue to increase
/ LEVERAGE IS UP
Average debt levels have increased a full turn (from 4 to 5) since our last survey, despite increased EBITDA levels
One-third of respondents have at least 6X leverage
/ TALENT MARKET OVERHEATED-TIME TO RETHINK MODEL?
Only 28% of respondents identify themselves as first time CFOs
Recruitment activity is intense with more than half of respondents approached on new opportunities at least five times per month.
Risks of increased hold time OR liquidity events – increased hold times lock in CFOS. For the 39% of CFOs outperforming their investment thesis (and therefore their equity base case), a risk exists that they will not reenter the market at liquidity. CEOs and PE investors may be forced to rethink recruitment strategies.
/ OPTIMISM REIGNS AND YET...
78% of respondents expect improved results in 2022 with 44% expecting significant improvement over 2021 levels. And yet…
Respondents also identify labor shortages, turnover, wage structure, supply chain and inflation as “high probability” challenges with “material impact” on Company profitability.
/ COMPANY PERFORMANCE STRONG - CLOUDS ON THE HORIZON
79% expect improved results over 2021 - 36% "much better" and only 17% expecting a decline
Participants site Labor Shortages, Wage Pressure, Turnover and Inflation as highly probable to have a material impact on Company results
Between April 14 and May 13, 2022, Vardis contacted the CFOs of more than 1,000 Private Equity Portfolio companies. . During this time, Russian forces pressed their attacks on Ukraine, COVID drove a shutdown of Shanghai, the S&P fell by 9.4%, and the US Federal Reserve raised interest rates by 50 basis points in the face of annualized inflation tipping the scales at more than 8%. We asked questions about compensation, board communication, their roles, and their outlook for 2022 and beyond. While North America is over-represented in our final sample, the CFO market is efficient and global. We have identified regional differences where they are material.