As I’ve written again and again in this column, this isn’t your grandfather’s private equity market. Not only are firms dealing with tariff whiplash and recessionary fears, but sponsors can also no longer rely on ever-expanding multiples. And so, they’re rightfully hyper-focused on performance. They need their portfolio CFOs to be equally fixated, and they’re not—or at least that’s not coming across.
Enter some rough performance reviews.
According to Accordion’s just released survey (download required) of 200 PE sponsors and 200 PE-backed CFOs, 74% of sponsors say their portfolio CFOs are underperforming as stewards of the finance function. At the root of this underperformance are three timely concerns. Sponsors say their portfolio CFOs are floundering on finance fundamentals, not fixating on value creation and not getting exit-ready with enough urgency to take advantage of any window of opportunity.
It’s not that CFOs aren’t meeting the moment—it’s that CFOs aren’t meeting this moment, with its tariff uncertainty, recessionary concerns, limits on multiple arbitrage and its historically anemic LP returns. And perhaps even more concerning is the fact that these CFOs don’t understand how, exactly, they’re underperforming.
Don’t get me wrong; CFOs aren’t surprised that their sponsors are unhappy. But they’re confused about the reasons behind the discontent. And those reasons are proving to be very specific to this market.
Where’s the disconnect stemming from?
CFOs mistakenly believe they’re not meeting sponsor expectations because they’re falling down on forward-leaning finance responsibilities: things such as tech-enabling the function, leveraging predictive analytics and marrying operational and financial data for more dynamic forecasting. They’re wrong. Of course, sponsors want CFOs to get the needle-moving value creation levers right, but sponsors also know that to reach those levers, CFOs must first perfect the basics.
And sponsors say their CFOs haven’t done that. They’re not leading an effective close process, they haven’t leveraged traditional financial data to create actionable insights and they’re certainly not integrating acquisitions quickly or comprehensively enough. And that means they haven’t looked under every nook and cranny of every basic finance workflow to unlock the kind of hidden EBITDA that will either drive valuation or provide a cushion in a down market.
What else are CFOs getting wrong about their sponsor’s frustrations and their broader 2025 mindset? They’re not getting that, even in this uncertain market, sponsors still want them thinking about the long game.
According to the survey, most PE-backed CFOs say they prioritize yearly performance over equity value, believing that’s what their sponsors want. But the reality is that two-thirds of sponsors prefer having their portfolio CFOs focus on maximizing equity value, even if it’s at the expense of short-term performance. It’s a major misalignment with real consequences for eventual exit-readiness and dealmaking.
As for that dealmaking, sponsors are putting major M&A on pause. As a result, hold periods will likely be longer than expected. That doesn’t mean sponsors want their CFOs to forget about exit. In fact, it’s quite the opposite. Almost all sponsors (98%) want their CFOs to leverage these unexpended lengthier hold periods as an opportune time to get exit-ready for when the market rebounds, or for when windows of opportunity present themselves. But 76% of sponsors say their CFOs aren’t doing this. They’re not getting their companies prepped for sale or transactions.
Part of the problem here is the disconnect behind the definition of exit-ready. CFOs believe it means typical sell-side diligence initiatives. But in this market, sponsors are defining it more holistically. They’re talking about pulling value creation levers in tandem with diligence. For companies that may not be prime-time-ready, sponsors are defining exit-readiness as having a road map of future value for the next buyer. This road map would provide buyers with a plan for the specific value creation levers that can be pulled to increase profitability.
Getting on the same page
This misalignment means real consequences for PE-backed CFOs, many of whom are justifiably concerned about their job security. But in case you think this is all just too inside baseball to matter more broadly, you’d be incorrect.
We’re seeing a massive valuation gap in the market, as sellers are still aggressively pricing even their underperforming assets. (In fact, a 2024 report (registration required) exposed the negative correlation between valuation multiples and earnings growth in PE-backed companies.) Whether they are looking for deals now or as the market rebounds, buyers don’t want to pay a premium for assets that won’t produce significant ROI, and so we’re in a game of valuation chicken. If sponsors and CFOs don’t get on the same page about near-term priorities, then there’s no way to end the game of chicken or minimize the gap. And that means that investors won’t see returns, and the private capital engine that fuels a lot of market growth will stall.
The good news is that there’s a playbook to CFO (and therefore PE market) success: fix the foundational flaws, focus on value creation and be ready to become exit-ready on demand.