Whether you are looking for acquisitions or are considering selling a business to a strategic, understanding the driving interests of corporations is critical. Often the CFO is one of the lynchpins in deciding whether or not an M&A transaction is desirable for the strategic acquirer. Drinker Biddle and the CFO Alliance recently released the results of their Q2 2013 CFO Pulse Survey, offering insight into how CFOs from around the country are thinking about their businesses.
The survey revealed that there is a primary focus on increasing revenues and growth in both existing and new markets. Also, many CFOs are seeking partners with experience and specialization. According to Nick Araco, CEO and President of CFO Alliance, “It is an interesting time to be a CFO.” He continued, “During the first half of the year, nearly 90% of our members were focused on driving top line performance and increasing revenues, market shares, and profitability.” 23% are considering M&A opportunities.
While the focus on healthy growth is not surprising — especially as uncertainty lingers — Araco was surprised that, “many conversations were also centered on what a company already owned — fixed assets, revenue streams, and the areas of strongest performance. CFOs and other C-level execs appear focused on capitalizing on these areas of strong performance to improve revenue performance.” In other words, growth is not to be achieved by any means necessary.
Given these specific focuses, Araco explained, “The best way to approach a CFO is to open with two questions: ‘what are you proud of today? And what is keeping you up at night?’” He continued, “If you can begin a dialogue that way and ask those two important questions, you get a better sense of the desired end game. Even if it is not a transaction today, it could mean a joint venture or co-investments in organic growth.”
Member Benjamin Gerut of Kuzari Group recently made similar comments, talking about the importance of collaborating and partnering with business owners. “I really believe that most of these retiring entrepreneurs want more than a simple check; they want a real transition with real mentorship…they want succession,” he explained. “Operating partners at large caps are often seen as less significant to overall investment performance, but in the middle and certainly the lower-market, they are truly the head of the spear.”
Of the respondents, 23% were considering M&A as a serious growth strategy. Greater priority lay with increasing market share or diversifying customers and products. However, M&A and increasing market share are not mutually exclusive; a well-executed, strategic acquisition can both increase market share and product diversification, and could be a good place to guide a conversation.
When speaking with a CFO, either as a target or as a potential exit opportunity, it is better to initiate a conversation around the ways you can solve their challenges. Since 38% of CFOs believe they do not have the right people, processes, and technology to achieve their desired growth strategy, positioning your experience and your firm as the experts in the area will likely make for warmer introductions.