CFOs in private equity increasingly focused on retaining key talent

14 February 2017 Consultancy.uk

CFOs of private equity firms continue to focus on future proofing their businesses, a new EY report finds. One key area of concern is retaining millennial staff – many of whom are quick to move on if conditions are not supportive. To boost retention, CFOs say that they will continue to invest in professional development opportunities, training and transparency in communication.

Private equity (PE) firm CFOs are facing a host of new challenges when it comes to meeting ‘the challenges of tomorrow’, finds a recent EY survey of the industry. The survey, titled ‘Have yesterday’s challenges provided a foundation for tomorrow's success?’ and involved 100+ CFOs from the PE industry, explored the key areas of attention going into the future to make their businesses more competitive includes talent management, improved reporting and leveraging technology.

Past and future moves to make PE business more competitive

The respondents were asked to rank recent efforts to make their respective businesses more competitive. The most prominent move has been the hiring of talent, cited by 67% of respondents, followed by improving investor reporting, cited by 62%. In recent years, regulatory pressures have increased across the financial sector – particularly in light of a range of sector scandals – resulting in more regulatory compliance. Retaining talent ranked fourth.

To make the business more competitive in the future, 51% of the CFOs cite retaining talent as a key focus, followed by improving cybersecurity efforts. Automating manual processes comes third, cited by 48% of respondents. Better data management techniques came in fourth.

What are your top operative objectives

The research also asked respondents to rank their top operating objectives going into 2017. The results reflect wider efforts to become more competitive, with improving management reporting on top of the list, as cited by 55% of respondents, followed by developing personnel, at 53%. The automation of operations and system investments come in at 45% and 35% respectively. Outsourcing services was cited as important by 27% of respondents.

Building the ideal workforce

The training and development of a company workforce remains a key cost, as well as a key element of long-term success. The survey asked respondents to rank the priority of a number of key talent related metrics, in relation to the past two years and the next two years. The results show a considerable increase in focus on increasing staff productivity, up from 67% of respondents for the past two years to 79% for the coming two years. Priorities related to hire quality remain the same at 45%.

CFOs say that they are less likely to focus on further increasing headcount, however, they are likely to improve retention levels, up from 17% stating is as a priority over the past two years to 33% that see it as a priority in the coming two years. The number of respondents citing a move to decrease headcount is up slightly, from 10% to 12%.

Understanding what millennials want

One area of increased challenge for CFOs is engaging the instreaming millennial generation of employees. Recent studies highlight that this group is considerably more mobile, as well as more value driven and less profit focused. 70% of respondents, as such, expect the average millennial to stay around 2-5 years, although 22% say that they expect them to stay less than two years.

In a bid to retain millennials – many of whom place personal development and career progression highly – CFOs say that they will focus on professional growth opportunities, increasing technical skill development, and providing transparent communications.

Scott Zimmerman, EY Americas Private Equity Assurance Leader, remarks, “Private equity firms’ CFOs realize they have to build teams, retain talent and capitalize on rapidly developing technology to be competitive in the foreseeable future. People will always be most important, but today, it is also about optimizing operations through understanding the true impact of their digital agenda.”

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Consumer goods start-ups grow interest from venture capital

23 April 2019 Consultancy.uk

Funding the latest consumer goods start-up has been a real money-spinner for venture capitalist firms, with a number of $1 billion companies – or unicorns – having emerged in the space in recent years. New analysis has explored the resulting corporate consumer products activity in the acquisitions space.

Consumer products have enjoyed years of strong growth as new markets opened in developing Asia. China in particular has enjoyed strong growth across a range of consumer good types as the country’s middle class expanded. Private equity firms have been keen to pick up targets in the space as they expand their portfolios to include additional local capacity as well as customers in new markets.

As a result, a study from Bain & Company has found that interest from PE firms in the consumer product space grew sharply in 2018, hitting 6.1% of all invested capital for the year, and making it the third most sought-after category. It is now only behind financial services (23.9%) and advanced manufacturing and services (13.9%).

Corporate venture capital investment

The ‘M&A in Disruption: 2018 in Review’ research found that growth in the segment reflects key changes in the segment as a whole. This is particularly true of insurgent brands, which often leverage local expertise in order to take on international giants in domestic markets.

Short change

The market changes have led to shifts in motivations for consumer goods company investments from PE firms. The number of strategic investments stood at 50% in 2015 compared to deals that increased scope. This has shifted significantly, with 34% of deals focused on strategic outcomes in 2018 compared to 66% for scope. The move towards scope reflects companies seeking out fast-growing products that enable stronger revenue growth streams.

Acceleration in scope-oriented M&A in consumer products

However, there were other motivations for deal activity in the space. Activist investors have put pressure on companies to expand their portfolios in recent years, with the trend expanding from just US targets to Europe.

Further trends

The other key shift in the space regards outbound deal activity. The study found that outbound deal activity has increased significantly in the Americas (up 363%) with total deal volume up only slightly (15%). Key deals included Coca-Cola and Costa, Procter & Gamble and Merck’s consumer health unit, and PepsiCo and SodaStream. In the Asia-Pacific region, outbound deal activity rose 195% while total deal activity fell sharply, by -36%. The EMEA region saw both a sharp decline in outbound deal activity, at -68%, as well as lower overall deal activity, which fell by 32%.

Cross-regional deal making

Deal-making in the current environment is increasingly fraught with uncertainties, as business models change on the back of new technologies, new consumer sentiments and wider market changes from new entrants. As such, acquisitions are increasingly useful as possible hedges on changes in market direction. As such, companies are increasingly pressed to take a future-back position, making sure to incorporate a vision of how the company needs to look in five years into acquisition strategy.

The firm notes that certain acquisitions which enhance a remembrance of a nobler mission, revive a sense of entrepreneurialism and engage directly with consumers may be necessary qualities in acquisitions that transform a company to fit market expectations in the coming decade. While going forward, focus on innovation, partnering with retail winners, reducing cost base and constantly reallocating scare resources will be necessary to protect market share in areas where insurgent local and strategic competitors are active.

Related: Private equity asset growth top priority for 2018.