Capital gains tax is the tax levied on the profit made from selling assets like stocks, real estate, or business interests.

When tax rates on capital gains increase, a larger portion of the profits from these sales will need to be paid to the government, reducing the amount that sellers can keep.This has prompted many funds and founders to accelerate the sale of assets, eager to cash in before increased tax liabilities affect returns for themselves and their LPs.

These pending changes have also prompted an increased focus on bolt-on acquisitions of smaller complementary assets, allowing companies to enhance their value quickly through additional revenue and market share before selling.

The rise in transaction volume has driven greater demand for experienced exit and M&A CFOs to help navigate these complex deals and ensure efficient processes.This article explores the role CFOs play in exit readiness, including why interim CFOs may be brought in, and the key traits that make a great exit CFO.

The role of the CFO in exit readiness

CFOs play a crucial role in preparing a company to exit, creating a compelling financial narrative that attracts investors and potential buyers and managing a wide range of financial and strategic complexities. Companies will typically spend 2-3 years working towards a transaction, showcasing sustained performance to validate the company’s growth trajectory and the robustness of its financials.

If the incumbent CFO lacks the necessary expertise, they are often upskilled or replaced at least 12-18 months before a deal by someone with proven transaction experience.

Packaging the business for market involves more than financial preparation; it requires aligning operational efficiencies and crafting a narrative that highlights growth potential. An experienced exit CFO will be equipped with a playbook from previous successful transactions.

They will bring insights from working with investors, having seen what good looks like, dealt with similar personalities, and understanding what key triggers need to be hit to guide the process from pre-deal preparation to post-deal integration.

Pre-deal, the CFO will be crucial in optimising the financial health of the business and making it more attractive to potential buyers, either enhancing the bottom line through strategic restructuring and cost reduction to maximise returns, or business partnering company leaders to improve the top line. Ensuring that all aspects of the business are streamlined, their objective is to minimise concerns during due diligence and maximising the perceived value.

Key responsibilities may include managing debt and leverage to improve cash flow, refining the company’s financial narrative, and building strong relationships with advisors including investment bankers and legal counsel.

The CFO will lead investor roadshows, presenting financial forecasts, KPIs, and the company’s growth story to build trust and generate interest; “the goal is to create a clear equity story that highlights the company’s future potential and drives competitive bidding,” says Associate Director, Tom Garratt.

In this context, a CFO’s ability to inspire confidence through conveying strong vision alongside accurate financials is as vital as their technical skills.

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