A talk with Evan Osheroff, Managing Director, Software Investment Banking
Many companies depend on the CFO’s office as a hub for strategic thinking. It is responsible for diverse functions ranging from budgeting and forecasting to cash flow management to deep data analytics to oversight of travel and human resources. Much of what CFOs do is mission-critical for their business, and they are hungry for solutions that drive better efficiency and profitability.
The growing array of companies serving the Office of the CFO will gather at Jefferies’ Fourth Annual Office of the CFO Summit on September 24th in San Francisco. Leaders from 75 companies, nearly 175 investors, and hundreds of other participants will discuss the most important trends, opportunities, and challenges for companies operating in this space in 2024 and beyond.
In preparation for the Summit, we sat down with Evan Osheroff, Managing Director, Software Investment Banking at Jefferies, to explore what is happening in the CFO office today and its implications for software companies and investors.
Q: What’s the most notable trend in how CFOs allocate their resources?
EO: More and more purchasing is being consolidated under the CFO. For example, HR does not buy most HR software. Although HR may be looking at and using it, the CFO is purchasing, assessing, and paying for HR software. And that is just one example of the trend. Companies must focus more on profitability and where they are spending. Procurement processes are becoming more complex and critical to performance, necessitating more involvement from the CFO.
Q: We are in the early innings of artificial intelligence adaptation, but how is it impacting the office of the CFO?
EO: AI is on the roadmap of every single company. And they talk about it in two ways:
The first is taking all your data and making decisions faster and more effectively in real time. That’s the idea of having all your data and running AI on top of it. Second is a textual (really generative) conversation interface that allows you to ask questions about your data. You ask, “What happens if I hire five more salespeople in this territory? How does that impact our annual plan?” and it spits out an answer. This used to take weeks, teams of people, and a ton of iteration, and now it happens almost instantaneously.
But it is still incredibly early. CFOs right now believe that AI is a nice feature but not core to the business. We are just not there yet. Eventually, AI will drive more value and create more extensive capabilities. AI will augment this space. But we are a long way from AI transforming it.
Q: What kind of transactions are getting done in your corner of the software market?
EO: M&A has picked up materially in the last twelve months. There are several reasons why.
Companies that are already platforms are filling in the last holes in their armor. We are seeing deals of that kind, both big and small. Another reason is that this space is increasingly seen as mission-critical. Most private equity firms have invested in enterprise software, and many have put money to work or are focused on the Office of the CFO. This will be evident if you see the attendees at our upcoming conference. So, expect PE to continue to be a significant driver of M&A in this space.
Q: Are you seeing more strategic or private equity deals?
EO: Private equity has been the lead dealmakers, although we expect strategic activity to pick up.
It’s also important to note the strategics buying a lot of these assets are owned by private equity. These “sponsor-backed strategics” will play a growing role in dealmaking in the months ahead.
For example, a number of public companies were recently acquired by private equity at deal values ranging from $2 to $10 billion. We expect a handful more of these in the coming year. Once those businesses are private, they will have the backing to execute on an M&A and operational strategy that may have been difficult or impossible to implement as a public company.
Q: What is happening in the IPO market, and where do you see it heading?
EO: Generally speaking, across tech, there is massive pent-up demand. Tens of companies in this space that have crossed the $100 million threshold will want to go public. As the markets open, we expect many of these to start thinking more seriously about an IPO.
Q: Is there any subsector that you are especially excited about?
Financial Planning & Analysis (FP&A) is one of the most critical technologies because that is where companies build their financial forecast, budgeting, planning, and forecasting. That’s where we are seeing a lot of innovation. That’s where we can talk about generational leaps and bounds in progress. A few years ago, FP&A software solutions could add value by letting a CFO move their data out of Excel spreadsheets onto a platform, enabling more collaboration and basic analytics. Now, you see solutions that can sort and make sense of data on a massive scale and layer in predictive analytics that can enhance decision-making and inform strategy. So, the speed of improvement is significant and accelerating.
