Gone are the days when the private equity industry used to operate behind closed doors. In the past few years, this realm has emerged as one lucrative option for both investors as well as company founders to run their businesses. A pertinent question that arises out of this equation is that, why are companies choosing private equity over initial public offerings? Let’s deep dive into the topic to find an answer. For the majority of American Businesses, an IPO still remains to be an island destination they must reach. But that is easier said than done. The kind of capital and administrative effort which is required to get there is not an easy nut to crack. The easier alternative to that has now been understood to be that offered by top private equity firms.
For this reason, the total number of initial public offerings has been on the decline since the year 2010. 8 years back, there were a total of 153 IPOs, in 2011 we witnessed a total of 125 of them, in 2012 the number persevered at 128, in 2013 as much as 233 companies went for an IPO, in 2014 this number still grew to 275, but since then it has fallen steeply. How so? The total number of IPOs in 2015, 2016 & 2017 (till now) have been 170, 105 & 105 respectively.
Private Equity as an industry has been quietly doing business, as usual, raising a staggering $2.3 trillion in the last four years. Imagine the kind of work which this amount of money warrants to be managed. Now that we are clear on the capital needs of growing companies, why not look at the kind of changes, that such a phenomenon would give rise to, especially in regards to the role of a Chief Financial Officer.
Never before have the top private equity firms stressed more importance on the CFOs than in the present. The designation which was only entitled to ensure financial accuracy is now working for a hand in glove with the chief executive officers to use those numbers and introduce an economic outlook, to the business decisions. For the same reasons questions like “are we in a position to expand the business?” or “should taking over a company be profitable?” are being taken in consultation with the CFO.
It would not be wrong to say, that with such an influx of capital, a private equity career, would be a good choice after all. While the entry pass for associate level profiles remains to be easily accessible, it is the higher leadership where the rules need to be bent a little. Irrespective of whether a person has had a career in private equity or not, CxOs should now be willing to handle more than just their share of responsibilities. A certain way to ensure a thriving top-level profile in the field would be to get certified.