PE-backed CFOs deal with extended hold periods

Rubber bands. Bubble gum. A punk’s earlobes. Your favorite pair of jeans. Some things are made to be stretched, but private equity hold times have been stretched nearly to their limits; exits are happening, yes, but with less frequency and at lower values.

More specifically, “sponsors are holding their largest, highest-value assets off the market,” according to a report by PitchBook on second-quarter US private equity data, and hold times are growing beyond their standard five-year roadmaps, Mario Peshev, CEO of revenue ops consultancy DevriX, told CFO Brew.

“We see a growing number of unsold companies, we see that the hold periods are getting longer…now we see more companies in their late sixth year, even seventh year, not necessarily ready to [be bought],” Peshev, who advises PE portfolio companies, added.

Stretch equity. What happened to lengthen hold times? Private equity co-investment group CapitalPad in a June report pointed to PE buyers being more selective about exits, and the exit market last year “shrank faster than portfolios did.”

The biggest shift for portco CFOs is that “operational value creation stopped being a differentiator, but an industry standard,” Peshev said in an email. “Financial engineering delivered returns when capital was cheap. Now, unchanged LP return expectations have to be met by actual business performance, not by moving capital and debt around.”

The change has shifted the role of a portco CFO from simply a controller to “the person who reports and decides on investments around actual value created: unit economics, customer-level profitability, forecast discipline, and the data integrity that supports an exit narrative.”

In addition, “A longer hold means more board cycles, more capital calls to defend, and more chances for the thesis to drift. The CFO has to maintain a financial model that stays honest across a longer horizon, which means rebuilding around leading indicators and evidence gates rather than a single exit-year target,” Peshev said.

Time well spent. While hold times continue growing, Peshev recommends CFOs dedicate energy to “the structural work” that a more standard hold time would prevent them from doing. He recommended three steps:

1. Build a customer-level P&L. “Most portcos do not have one, which means nobody can say which accounts are actually profitable,” Peshev said. “You cannot price, cannot allocate service cost, and cannot defend a retention strategy until that data exists.”
2. Use that P&L religiously. For example, Peshev recommended “segmented pricing based on service intensity, not a flat increase which used to be common in previous buy cycles.”
3. Install the structural investments that only pay back over 12 to 18 months. “RevOps to make the forecast predictable, CRM adoption before you touch sales productivity, and the reporting infrastructure that lets you walk into a board meeting with leading indicators instead of last quarter’s lagging numbers,” Peshev said.