Every quarter our team analyzes the projects we work on with our 500+ PE firm clients to get a bird’s eye view of the market. We recently compiled our Q1 2023 findings into our BluWave Insights Report. You can request your copy and our client coverage team will be in touch.
Key findings from Q1 ’23 include:
Value creation activity is at an all-time high, matching Q1 2022.
Human capital remains PE’s primary area of focus at 45% of all Q1 activity, also matching an all-time high.
Technology remains a priority at 11% of all Q1 PE activity.
Strategic sourcing and procurement is a crucial process that aids businesses to balance revenue growth strategies, smart cost containment, sourcing and operations configuration.
“When the economy’s going down, people aren’t making as much money as before,” says Scott Bellinger, BluWave’s co-head of research and operations. “Even if they’re maintaining or increasing their sales, the cost is going up. Every dollar you can capture in a downturn is huge for business.”
The process entails a strategic outlook on possibilities and requires a well-executed implementation to achieve lower total cost and support revenue growth. In essence, the objective is to attain a balance between operational efficiency and financial performance.
“There are companies that are really trying to build out a platform that allows them to be a strategic sourcing provider to large manufacturers,” says one of our BluWave-grade service providers, Don Jenkins* of Supply Chain Management Co. “So they’re going to help them acquire components from around the world from suppliers. They’re going to administer those contracts. They’re going to handle the logistics of any regulatory issues that fall into that.”
Strategic sourcing is an integral part of supply chain management that provides a systematic approach to assure timely delivery of goods and services and decrease the risk and costs involved in the supply chain.
Investing in supplier relationships is a key aspect of this process. Let’s look at it in more detail.
Outsourcing non-core products or services: A company could contract a vendor or supplier who can deliver products or services within the required time frame and without any delays or issues.
“I think where it gets more proprietary, a little more specialized, I think those areas are less likely to maybe outsourced,” Jenkins says. “Whereas when you look at kind of commodity products and commodity processes, that’s where the outsourcing’s probably more likely to happen.”
Creating partnerships with suppliers for key products: An organization might opt to centralize all purchases with a single vendor to avoid high delivery fees or fluctuating prices for goods.
Procuring commodities internationally: A business may identify a supplier or vendor who can provide multiple products or deliveries simultaneously from different regions around the world.
Spend analysis: Analyzing the company’s spending patterns to identify areas where costs can be reduced.
Establishing clear criteria for supplier selection and evaluation: Businesses can use scorecards or other formats to select the suppliers that best meet the company’s needs.
Negotiating contracts: This step helps organizations achieve the best possible terms and conditions.
Developing strong relationships: Building long-term relationships ensures a stable and reliable supply of goods and services. Third-party resources with existing supplier relationships are a great way to accelerate this step.
“The businesses are going to want to have strong relationships with those suppliers,” Jenkins says. “They’re going to handle all the logistics-related issues, and they’re going to administer those contracts.”
Advanced analytics: Identify opportunities for cost savings and supplier performance improvement through data. With the explosive growth of AI tools, this is easier than ever..
Focusing on total cost of ownership: The initial purchase price should not be the only factor when evaluating suppliers.
Cost savings through economies of scale: By consolidating purchases and leveraging their purchasing power, companies can achieve cost savings through economies of scale.
Improved efficiency: Strategic sourcing can help improve the efficiency of the procurement process by reducing the time and resources required to identify and evaluate suppliers.
“There’s not a large variance in pricing that exists because of the nature of the commodity product,” Jenkins says. “So you have different areas of the world, potentially, where you can go to get that product, and the magic is just having someone that can organize it, find it, administer the contract, get the logistics set up.”
Access to expertise and technology: Organizations may access to expertise and technology that they may not have in-house. This can help improve the quality of products and services and reduce costs.
Improved supplier relationships and performance: Strategic sourcing involves building long-term relationships with suppliers. This can help improve supplier performance and reduce risk.
Reduced risk: By building strong relationships with suppliers and implementing a supplier relationship management program, companies can reduce the risks associated with their supply chain.
Increased agility: Businesses that correctly implement strategic sourcing can more quickly respond to changes in the market.
“It’s like ‘What pieces of what we do can we outsource, not have to have our full-time resources committed to this and still get the job done?'” Jenkins says of companies’ approach to strategic sourcing. “In what cases does it make sense to outsource a product or service or process as opposed to trying to do it yourself?”
Businesses are concerned with two types of procurement: indirect and direct.
Indirect procurement means cutting costs from anything that’s not core to the business product or service being done. Examples include company cars, postage, travel spend, telecom providers, and pens and pencils, to name a few.
Bellinger says expert third parties are highly motivated to help with this.
“The benefits would be that you can engage a firm that can take out costs of your business for non-core expenditures,” he says. “The beauty of it is these groups work off of a gain-share model, so they have an incentive to help you save money.”
Direct procurement, on the other than, is related to lowering COGS via things like components, manufacturers and resource suppliers.
“As your supplier base continues to raise prices, you want to engage direct procurement groups that can resource your suppliers on a lower cost profile,” Bellinger says.
Step 1: Assess your current procurement process: This involves analyzing your current procurement process to identify areas for improvement and opportunities for cost savings.
Step 2: Identify products or services to outsource: This involves identifying the products or services that can be outsourced to achieve cost savings and improve efficiency.
Step 3: Evaluate potential suppliers: This involves evaluating potential suppliers based on criteria such as cost, quality, reliability, and delivery time.
Step 4: Negotiate contracts and establish service level agreements: This involves negotiating contracts with suppliers to achieve the best possible terms and conditions, and establishing service level agreements to ensure that suppliers meet the company’s requirements.
Step 5: Monitor and evaluate supplier performance: This involves monitoring supplier performance to ensure that they are meeting the company’s requirements and taking corrective action if necessary.
Proprietary technologies and products: Organizations should assess whether outsourcing will compromise their proprietary technologies and products that give them a competitive edge.
Customer relationships: Firms should also consider the impact on their customer relationships, particularly if they have strong ties.
Commodity products and processes: Businesses may want to outsource commodity products and processes that do not provide a competitive advantage. This can help them reduce expenses and enhance productivity.
Cost savings: Enterprises must evaluate the possible cost savings that can be attained through outsourcing.
Supplier capabilities: Firms should assess the abilities of potential suppliers to ensure that they can meet the company’s requirements.
Risk management: Organizations must consider the risks associated with outsourcing and take measures to mitigate those risks.
“There are companies that have built up a network of supply sources and a network of transportation solutions to get a product from A to B,” Jenkins says. “If you’re a large manufacturer, and this happens to be a product that you don’t deal with every single day in large quantities, but every once in a while you need it, and when you need it, you need it badly, that is a pretty good candidate for an outsource relationship.”
The expertly vetted third-party resources in the Business Builders’ Network understand the importance of strategic sourcing to get the most out of your investment.
Tapping into industry-specific service providers who know not only your business, but also your competitors as well as you do can provide a significant advantage.
No matter what objectives your PE firm, portco, private or public company has, our research and operations team will assess your needs and provide a short list of best-fit solutions within a single business day.
*Privacy is important to us. While the source and company name have been changed, these are real quotations from a real service provider in the BluWave Business Builders’ Network.
Service Provider Type: Independent Consultant with Financial Expertise
Industry: Healthcare
The Need
Ready to sell one of its portcos, the PE firm was looking for an outside expert to provide pre-sale diligence
The PE firm was ready to sell its diagnostic supplies and equipment manufacturer and was looking for a financial expert to get them across the finish line.
The Challenge
Financial expert to help prepare a portco for sale
The individual would need to help review quality of earnings, perform a market study, validate a financial model, coach management on pitching, and most importantly, be able to close the books and handle data requests.
How we helped
Connected the client witha PE-grade CFO
BluWave provided three experienced resources – all with CFO experience – from its pre-vetted network in less than 24 hours. We were by the firm’s side throughout the vetting calls, and helped them choose a best-fit option.
The Result
Consultant comes on-site and helps the PE firm close the sale in the same calendar year
Months after signing on the independent consultant, who worked on-site throughout the process, another PE firm purchased the portco. The consultant helped the organization with pre-sale diligence, optimized its finance function and ensured a smooth handoff to new ownership.
The buyers commented on the strong foundation and high growth potential of their new asset. The selling PE firm was equally pleased with the process.
We had a great experience with the consultant. My key feedback is that he has a great temperament and worked well with us and management. He has an ability to work independently and delivered solid results.
Technical debt doesn’t always get a good rep, but it’s not black and white, either.
There are both benefits – usually early on – and consequences, which accumulate with time.
As part of their IT due diligence process, many private equity firms take a hard look at the technical debt they might incur. That means it’s just as important for portcos, as well as private and public companies, to understand what they have on their hands before engaging in a potential sale or transaction.
In addition to defining technical debt, let’s look at some examples and types, as well as the pros of cons.
What is Technical Debt?
In software development, technical debt refers to the cost of maintaining a suboptimal or inefficient software system that was developed with an emphasis on speed, rather than quality.
It’s incurred by prioritizing quick results over a more well-designed code, which will mean more work to fix in the future, often with the objective of quick, short-term gains.
While technical debt can be a catalyst for growth, it can also create a challenges for developers and inhibit scalability.
“It allows companies to create software faster, with the understanding that they will slow down software development in the future. Companies will eventually be forced to spend more time fixing the debt than the amount of time it took them to produce the best solution at the beginning,” writes Trey Huffine of freeCodeCamp.
Companies may eventually be forced to spend more time fixing technical debt than they did to produce the best solution in the first place. It can also be defined as the cost of reworking a solution caused by choosing an easy yet limited solution. It represents the difference between what was promised and what was delivered in a software product, including shortcuts taken to meet deadlines.
While technical debt is not always bad, many businesses use it to launch ideas quickly as a minimum viable product (MVP) and then rapidly iterate and improve them. It can, however, cost more time, money, and resources over time.
Let’s dig in to more details to better understand how technical debt works.
Technical debt can be found in all kinds of software development projects. The following are some examples developers may encounter.
Bugs in the Code
When developers work quickly to meet deadlines, they may make mistakes that lead to bugs. These bugs can slow down the software or make it malfunction. If they’re ignored in the interest of meeting deadlines, they’ll continue to accumulate.
Legacy Code
Code that has been written in an older version of a programming language or framework, which can make it difficult to update the software. Updating the software may require extensive code changes, which can result in significant time and effort.
Missing Documentation
Incomplete or outdated documentation can make it difficult for others to understand the code, resulting in additional work later on. Especially if those people are new to the team.
If developers don’t document their code properly, it can be challenging for others to modify later on.
Poorly Refactored Code
When developers take shortcuts to meet deadlines, they may not properly refactor, resulting in code that is not optimized, requiring more work to fix.
Ignoring Quality and Best Practices
This can result in suboptimal code that needs to be reworked, leading to performance problems.
Insufficient Testing and Documentation
Skimping on testing or documentation can make it difficult to maintain or modify the code.
Suboptimal Architecture or Design
Choosing a suboptimal architecture or design can also make for extra work as time goes on. Expect performance problems that slow down software, too.
Short-Term Thinking
Applications built only with the near future in mind eventually means consuming more resources, time, and energy maintaining and rewriting “broken code” rather than developing new ideas.
Procrastination and Compromises
Not fixing bugs when they arise will likely produce technical debt, too.
While technical debt often creates challenges, it has its benefits, too. For example, it can be used to launch an MVP, allowing businesses to gain valuable feedback from users that can be used to improve the product.
Technical debt can also help businesses remain competitive in a fast-paced environment. By prioritizing speed and agility over perfection, you can more quickly adapt to changing markets and customer needs. It can also help reduce development costs, achieving goals in less time with fewer resources.
It is, however, important to consider the long-term costs and benefits. As the technical debt accumulates, it can become increasingly difficult to maintain and update the software, leading to reduced productivity and increased development costs and security vulnerabilities. Let’s go into more detail about the potential consequences.
The downside of technical debt can be dire, affecting not only the quality of the software but also the productivity and morale of the development team. Over time it’s increasingly costly to address.
The poor code quality can result in poor performance, bugs and maintenance issues. It can also hinder the ability to introduce new features and functionality, having a negative impact on user experience and revenue generation.
Additionally, technical debt can make it more difficult for development teams to work efficiently, as they must constantly navigate suboptimal code, taking time to understand and fix it.
Tech debt can also impact the development team’s morale. As it accumulates, developers may become demotivated, increasing turnover and making it harder to attract top talent. It can also mar a company’s reputation as negative user reviews roll in, reducing overall trust in the product or service.
It’s crucial to manage technical debt carefully and address it proactively to avoid long-term consequences.
The BluWave network is full of the best technology resources on the market for private equity, portcos, and independent and public companies.
The expertly vetted service providers ready to help know how to evaluate, utilize and address technical debt in a way that’s aligned with your business’s goals.
“The good providers will help you determine whether a company is making the most of its technology investments,” BluWave Head of Technology Houston Slatton says. “They can also say the products are out-of-date, end-of-life, have security issues, aren’t being used well, aren’t being backed up.”
Regardless of your industry, we can connect you with a niche-specific IT resource in less than one business day after an initial scoping call. Contact our research and operations team today to get started.
The majority of mergers and acquisitions fail. But why is that?
This can happen for many reasons: disunity, lack of communication, impatience, poor due diligence.
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In any case, many of these failures can be avoided, either by better planning, or by calling off the engagement when the two sides realize it’s not meant to be.
We’re going to look at some of the more common reasons mergers and acquisitions fail, along with some potential solutions.
Success/Failure Rate of Mergers and Acquisitions
Instead of asking, “What percentage of mergers and acquisitions are successful?” you may be better off asking “Why do acquisitions fail sometimes?”
That’s because between 70-90 percent of M&As don’t work out, according to Harvard Business Review.
If you’re about to execute a merger or acquisition, don’t be afraid to seek outside, experienced help.
The right resources will know where your blind spots are and how to overcome them.
Here are some of the common M&A pitfalls, and how to avoid them.
The acquiring must be crystal clear about what it wants to achieve and create a detailed plan to reach those objectives.
In many cases, the acquiring company may rush into a deal, perhaps because it sees an opportunity to acquire a competitor or gain market share. A lack of strategic thinking, however, can lead to poorly executed transactions that fail to deliver expected results.
Companies should instead take the time to develop a clear strategy. It should not only outline the company’s goals and objectives, but also specific dates by which they want to achieve them.
SMART goals are a good starting point, and may help avoid wasting time and resources on poor execution.
Companies may become too focused on the potential benefits of the acquisition, leading them to overlook the true value.
They may also overestimate the potential benefits, and fall in love with ideas that will never become reality.
One example of this is when AOL and Time Warner infamously merged Jan. 10, 2000, in a $350 billion deal. Ten years later, the companies’ combined value was around 14 percent of what they were worth when the merger was announced.
There are many reasons why this marriage failed, but one thing is clear: the price tag was far too high.
This can be a major contributor to failed mergers and acquisitions because it often leads to confusion. Employees are often collateral damage to this crucial mistake.
If they don’t understand how the merger or integration will affect their job, they may start to develop anxiety and mistrust. This could snowball into a lack of engagement and motivation, leading to lower productivity and higher turnover.
Lack of communication may also mean companies don’t fully understand each other’s processes or objectives ahead of time.
Instead, they should develop clear communication strategies. This can by done via proactive updates and welcoming feedback from those who may not be directly involved in making decisions.
Unrealistic Expectations
Some companies expect acquisitions to deliver immediate benefits without fully understanding the time and resources required. This is a surefire way to put key stakeholders on edge, leading to disappointment and frustration.
The better expectations are managed from the beginning, the more time leadership will allow for everything to fall into place.
If you get everyone’s buy-in ahead of time, when the pressure does begin to mount, you can remind them about the original plan to which they agreed.
Some key factors to understand about the target company pre-acquisition are its business model, market position or customer base.
This may be particularly difficult if the companies being joined have a lot in common. Perhaps their customer base is similar, but they have a completely different approach to acquiring new clients or sales.
It can sometimes be easier to join two companies that have little overlap. One example of this would be when Amazon bought Whole Foods for $13.7 billion in 2017.
“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” said Jeff Bezos, Amazon founder and CEO, at the time.
Amazon was not a leader in offering “natural and organic foods” before the acquisition, meaning they could rely on Whole Foods’ expertise in that area without the challenges of merging with an existing process.
Poor Due Diligence
If the acquiring company fails to conduct adequate due diligence on its target, they may overlook key risks or fail to identify potential synergies.
This is a smart time to bring in an experienced outside resource.
The BluWave-grade service providers in our network have helped PE firms hundreds of times in these exact situations. They leave no stone unturned so that both parties can move forward with confidence and begin their journey together without any surprises.
When two companies have different cultures, values and management styles, it opens the door to conflict and perhaps lack of cooperation.
To address this, companies need to be proactive in addressing cultural differences and develop a plan for integrating the two cultures. This may involve cross-cultural training, mentoring programs or the development of a shared set of values and goals.
An interim CHRO can be a invaluable resource in these situations.
The solution is to identify the key operational differences between the two companies and develop an integration plan. This may involve the adoption of new technologies or systems, or the development of new procedures or workflows.
Consider hiring a strong IT due diligence resource in these situations.
Regulatory Issues
The two companies may be subject to different regulations or legal requirements, which can complicate the integration process.
Carefully review each company’s regulatory environment to identify any potential obstacles or challenges.
Involve legal experts in the due diligence and integration process to ensure full compliance.
Mergers and acquisitions are complex transactions that require careful planning, due diligence and effective integration.
While there are many reasons why mergers and acquisitions fail, many of them can be avoided.
By proactively addressing the key challenges, companies can increase the chances of success in their new business relationship.
Fortunately, we have hundreds of expertly vetted service providers who know how to confront each and every one of these challenges, regardless of your industry.
If you’re considering merging with or acquiring another company, set up a scoping call with our research and operations team to see how we can help things go as smoothly as possible.
Mergers and acquisitions are complex processes that require due diligence in multiple areas. Information technology (IT) due diligence – a thorough evaluation of the target company’s IT assets, systems and processes – is one important aspect.
The goal is to identify any potential risks or opportunities related to the target company’s technology and make informed decisions about the transaction.
“It’s important to understand how well a company is using technology or how much of a risk or liability it’s become to a company,” BluWave Head of Technology Houston Slatton says.
One example of something companies look out for in IT due diligence is “technical debt.”
We’re going to get into more detail, though. Let’s talk about the importance and process of IT due diligence in mergers and acquisitions, especially as it relates to private equity.
IT due diligence in M&As typically involve the following steps:
Preparation
The acquiring firm or company must define the scope of the process, identify key stakeholders and set expectations.
An IT DD team should have relevant skills and experience, set clear goals and expectations and determine the right timing for it to happen.
This lays the foundation for an efficient and transparent process from start to finish.
“To a certain degree, every company is a software company now,” Slatton says. “Technology is now critical to the functioning of every business, whether it is selling software or building widgets.”
Collecting data on the target company’s IT systems, assets and processes is the next step.
This entails conducting a comprehensive review of the target company’s systems, processes and infrastructure, as well as its software and application inventory.
All of this will be crucial to helping you make informed decisions about how the assets may impact the M&A transaction.
Asset Evaluation
Now it’s time to assess the value and functionality of the IT assets.
This includes both custom-built and commercial software and applications, as well as hardware, infrastructure and data management systems.
When evaluating these, consider their functionality, reliability, scalability and compatibility with your own systems and processes. Do they add something completely new? Is there a lot of overlap?
Look at how they may impact your organization post-acquisition, too. Both in terms of cost and integration into your existing IT environment.
Identifying any potential risks or opportunities related to the target company’s IT systems, assets and processes comes next.
You might start by assessing the impact of the assets on your own organization, as well as considering any risks or opportunities associated with the transaction as a whole.
Recommendations
Last but not least, you will present the findings of the IT due diligence process to make the most informed decisions possible.
This may include how best to integrate the target company’s assets into your own organization. Or measures that should be taken to address any identified risks or opportunities.
This final step helps ensure that the transaction goes as smooth as possible, and everyone is on the same page once papers are signed.
The BluWave network is full of expertly vetted service providers who have helped hundreds of PE firms with IT due diligence.
“The better service providers will look at how well a company uses a tools they have and how well they have enhanced them to meet the needs of the business,” Slatton says.
Contact us to set up a scoping call, and our research and operations team will provide two or three tailor-made resources within a single business day.
Industry-focused firm with union experience to conduct market research, headhunt C-suite executives for portco
Service Area: Commercial Due Diligence: Market Study and Recruiting
Client Type: Mid-Market Private Equity Firm
Service Provider Type: PE-focused Diligence Advisory Firm
Industry: Construction and Engineering: HVAC & Plumbing
The Challenge
Prep for sale and build a corporate office team from scratch
The PE firm needed an HVAC-experienced market research firm to help with a pair of high-priority projects. With an eye on exiting soon, the firm wanted someone in the same region as their portco – the southeast U.S. – to talk to union reps, customers, facility managers, trade organization leaders and OEMs.
They were also looking to hire a CEO, CFO and Chief Labor Relations officer to build a corporate office from scratch.
How BluWave Helped
Introduced best-in-class service providers
With just a two-week timeline, we immediately presented a pair of BluWave-grade service providers with HVAC union experience. The client chose its preferred option and was introduced on a call the next business day.
The Result
Service provider sets up private equity firm for successful exit five months after introduction
The client engaged with the service provider, who completed the market study and helped them fill their executive roles. Five months later, the firm sold its portco to a large-cap PE firm after a five-year hold period.
The portco had a 400 percent revenue and EBITDA increase during the holding period, and integrated six different acquisitions in its exit year while working with a BluWave service provider.
We recommend the service provider for anything in the built environment. The team was great. Everything was great. They clearly knew the space. I’d use them again.
When a company faces a financial crisis, an interim chief financial officer can make all the difference in a successful turnaround.
Whether going through a restructuring, facing bankruptcy or other challenging financial situations, an experienced financial leader is essential.
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Situations for an Interim CFO
A financial crisis can be due to something within a company, external economic forces, or both.
Poorly responding to a distressing financial situation can destroy a business. A capable interim CFO, however, will know how to navigate the following scenarios.
Chapter 11 bankruptcy, though, means a company is still viable but needs help relieving some of its debt.
While an interim CFO would seldom take on a chapter 7 bankruptcy, it’s common for them to step in and help a company try to avoid chapter 11 bankruptcy. If it’s not avoidable, a temporary chief financial officer can also help navigate the situation.
“A very good interim CFO can be a lot of help because they come in and they look at, ‘What are the things between gross profit and net earnings that are negatively impacting the business?’” BluWave controller Justin Scott says.
Cost-saving measures could include lowering headcount, cutting advertising costs or negotiating with creditors, which we’ll discuss more below.
Restructuring
While most restructuring situations are tied to bankruptcies, there are exceptions. Here are some of the more common ones.
Carveouts
An interim CFO who can adeptly perform carve-out tasks is key for organizations looking to sell off part of their company. That can mean getting their hands dirty setting up general ledger architecture or determining which employees to include in the sale.
“Let’s say 25 percent of the existing team is going with the carve-out, then I’ve got to decide ‘What’s the 25%? How are those processes going to work?’” Scott says. “Where you typically see the carve-out CFO come in is because they don’t want all of those activities to take away from the core business that the existing CFO is already managing.”
An acquisition, of course, is the opposite situation. The finance executive must determine how to integrate multiple teams in the same company.
“You likely have multiple sets of books. You have multiple systems. None of them talk to each other,” Scott says. “Essentially, you’re running parallel systems or parallel processes for everything. And then you have to manually consolidate everything and that’s just no fun.”
Ginessa Ross, who is often the first point of contact for interim CFOs BluWave works with, says lots of clients have been emphasizing M&A skills recently.
“All sides of it, whether it be due diligence, post-merger integration or prep for sale – having M&A experience, especially in private equity, is key,” she says.
Cost Savings
A turnaround CFO may be sought when accounts payable get out of control.
If the internal team has become bloated, they’re likely to partner with someone in human resources to reorganize the company more efficiently.
“It’s not typically just finance here. It’s typically that a new technology has been implemented that’s changed the field and headcount needs to be reduced,” Scott says. “How do we eliminate or mitigate the overhead expense of the SG&A of what’s happening today?”
They may also cut marketing costs or improve operations to find savings. This can be done by spending less on advertising, implementing automation tools or canceling automated subscriptions, for example.
Hostile Takeover
Although unusual, there are times when a temporary finance executive is brought in for a hostile takeover.
“It is possible to go to an interim CFO as a stopgap,” Scott says. “But it’s not a likely scenario.”
More often, the company executing the takeover will already have a CFO in place.
What skills does an interim CFO need in a time of crisis? Accounting and finance, of course, are fundamental.
“You have to know the full revenue cycle cradle to grave,” Scott says, adding that strong management is also a key trait.
There are other things, though, that are particularly important for a chief financial officer in financially distressed situations.
Internal Communication
When managing a company’s finance team, the interim CFO must be able to communicate their plan of action. Since they’re typically in the role for around six months, they don’t have as much time to win trust and build unity.
Focusing the early days on getting to know the team helps with buy-in for the duration of the project. One component of this is alleviating fears of the unknown.
“The first day, I think, is talking to as many people as possible in the company, on the finance team, and reassuring them that things are going to get better,” says one long-time interim CFO from our network of experts.
A temporary finance executive must also be able to communicate with his or her peers and superiors. Not only do they sit in the C-suite, but they may be a direct line to a private equity firm that has a lot at stake.
“They have to be able to build credibility going both directions quickly if they’re going to get anything done,” Scott says.
Beyond providing clarity for coworkers, a chief financial officer must also be skilled at working with clients, creditors, vendors and other outside entities.
If a company is in danger of filing for bankruptcy, the interim CFO will likely negotiate with creditors to lower their debts.
They may also ask clients to move up their timeline for accounts receivable so the organization can have more cash sooner.
In either case, being able to work well with others is paramount.
“The situations where financial executives most often fail to reach an agreement are when they don’t have any people skills, or they don’t truly want a result,” Scott says. “You have to be able to bend and give a little bit on some of these things just like in any negotiation.”
Before taking a company’s financial reins in the midst of a crisis, an interim CFO should understand if the firm is planning an exit, and if so, what the strategy is. That allows the company to get the maximum benefit out of its new executive resource.
“Bringing in somebody from the outside allows you to access a broader set of skills and brings a fresh perspective,” BluWave managing director Houston Slatton says.
Here are some differences between prepping to sell the entire company vs. just a few assets.
Sell the Entity
If someone is brought on to prep for the sale of an entire company, their job is to get it in the best shape possible for the buyer.
Not only will this make it a more attractive purchase, but the seller will extract more value, too. This process should be planned for months, if not years in advance, when possible.
The interim chief finance officer brought on in this situation should have experience improving operations, cutting costs, increasing accountability and more. They should also be well-versed in evaluating and working with potential buyers and closing the transaction.
Even when parts of a company are being sold, as opposed to the entire organization, many of the same skills apply.
In this scenario, though, the company remains intact, and employees are not typically part of the package.
The right executive will help an organization receive a large return for those assets, boosting cash flow.
Each interim CFO in the BluWave network has been vetted and reference-checked before we ever put them on our roster.
That way, when companies in financial distress reach out, we can provide two or three exact-fit solutions in less than one business day. Whether your company is in the nation’s capital, Atlanta, our hometown of Music City, or any other major city, we have the resources you need.
This attention to detail and our private-equity speed turnaround give organizations a greater chance of getting back on track financially.
Every quarter we gather Vice Presidents in PE to discuss current industry topics and to offer these peers the chance to gather, share information, and decompress with one another. In our most recent event, we discussed the current state of the economy, debt markets, and the outlook for 2023.
These forums are invite-only and follow Chatham House Rules, so listed below are high-level takeaways only. If you are a private equity vice president and interested in joining fellow PE VPs during our next forum, you can register here.
Economy and Debt Markets
The state of the economy has compelled PE firms to be more intentional with their investment theses.
With rising interest rates, inflation, and recession risk, the debt markets have been curtailed, causing private equity firms to rethink how they structure deals.
As debt financing becomes less available, PE firms are becoming more creative to get deals done – including increasingly utilizing commercial lenders, and non-traditional funding sources.
Outlook for 2023
Looking ahead to 2023, private equity firms are developing strategic plans for their portfolio companies to find opportunities in the face of recession and determine where to deploy their capital in a relatively volatile deal market.
Many are expecting the first half of the year to be challenging, but are foreseeing a recovery later in the year if/as interest rates and inflation stabilize.
Different industries have been impacted differently by the economic downturn.
PE firms are proactively building value by using internal and external resources to do whatever they can to lift portfolio company revenues, optimize costs, increase cash flows and liquidity, and get the right people in place.
We thoroughly enjoyed getting to gather with PE VPs to discuss these current industry hot topics. We’d be happy to connect you to the PE-grade, exact-fit, third-party resources you need to assist you in this pressurized market, just contact us here.
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