Private company CFOs excited about, but wary of, SPACs

By Jane Thier for CFODIVE.com

• Diversity, equity and inclusion (DE&I) and environmental, social and governance (ESG) standards are priorities going into the new quarter, Grant Thornton’s latest CFO survey, released Tuesday, shows. 

• “Consumers and employees alike are demanding increased action and more transparency on DE&I and ESG issues,” said Enzo Santilli, Grant Thornton Transformation Advisory Business Line leader. “It’s vital for businesses to invest in these areas, and that means learning how best to measure returns on them.”

• The pandemic has also prompted CFOs to reprioritize technology investment: 53% said they prioritize long-term foundational technology infrastructure investment over technology that addresses immediate business needs. “Striking a balance between solving immediate needs and longer-term technology investment [...] is a critical challenge,” Santilli said.

More than three-quarters of respondents prioritize DE&I and ESG within their organizations, and more than half plan to increase investments in the areas going forward.

To track their investments in the area, most CFOs intend to use employee engagement tools, monitor recruitment practices, and introduce targeted software solutions.

While challenging, the pandemic has resulted in a handful of small victories, the 250 finance leaders said. More than 60% reported improved flexible and remote work environments, and more than 40% reported improved collaboration. 

Similarly, 40% noted improved business processes and strategy focus, despite largely working remotely.

Going forward, many CFOs plan to minimize their real estate expenses. Nearly one in three plan to cut their company’s real estate and facilities expenses over the next year, and almost another third to decrease it permanently. 

Just under half of CFOs expect to cut travel expenses over the next year; 41% plan to decrease it permanently.

“A year ago, CFOs were scrambling just to survive, but sometimes a crisis can accelerate positive change,” said Chris Schenkenberg, Regional Tax Business Lines national managing partner at Grant Thornton. “It’s clear that, especially among private companies, finance leaders haven’t settled for going back to the past. They’ve asked what’s possible, not just what’s wrong, and found new ways to push their organizations forward.”

CFOs remain open to policy changes under the new administration; nearly half (44%) said the Biden administration’s plans for environmental regulations would positively impact their businesses. 

Two in five support the Biden administration’s labor regulations, and 39% thought financial regulations would impact their businesses positively. 

The one issue on which CFOs skewed unenthusiastic: taxes. Just under 40% said the Biden administration’s tax plans will negatively impact their businesses. Among companies over $1 billion in revenue, 55% expected tax changes to bring a negative impact; just 29% of companies with revenues between $101 and $500 million felt the same.

Nearly 70% of respondents said the lack of policy consistency in Washington will “at least somewhat” negatively affect their ability to plan future investments. More than 4 in 5 CFOs in manufacturing, technology and telecom companies expressed that concern. 

“Stability and predictability matter,” Schenkenberg said. “Most businesses are open to reasonable regulation if they can count on a steady hand on the tiller.”

CFOs are also keeping an eye on the trend of going public by merging with a publicly traded blank-check company using the SPAC process; 84% said SPACs have increased their interest in an IPO. They were about equally split on whether a SPAC of a traditional IPO would be their preference.

“SPACs offer an exciting option for companies considering going public,” Sean Denham, leader of Grant Thornton’s Global Services industry, said. “But CFOs have reasonable concerns about potential regulatory attention, valuations and the possibility of a bubble.”

More than 70% of the CFOs believe SPACs improve access to capital for start-ups, and 67% said they can expedite an IPO. But 69% expect greater SPAC regulation from the Securities and Exchange Commission this year, and 55% believe SPACs overvalue new public companies.

“2021 could be a transformational year for CFOs, one where the finance function transitions from crisis management to growth,” Denham said. “Whether it be investment in technology, social change or looking to take a company public, the old ways of doing things will no longer work."