The requirements, objectives and dynamic, can vary significantly when working as a CFO in a PE environment versus a corporate environment. Michael Williamson, an experienced CFO, has worked for a number of blue chip businesses like Oaktree Capital, GSK and Sanofi, and recently led a finance transformation project within the asset services division of Cushman & Wakefield, a TPG private equity funded business.
Michael points out that the fundamental difference between a PE and corporate environment stems from the overriding motivation; “In a PE environment the key driver is that there is a clear exit strategy for the investor which can be as short as two years post-acquisition”. At Cushman & Wakefield, that meant they were simultaneously putting in new systems while developing the outsourcing solution for the Asset Services division at the same time.
Ultimately, the drivers in PE and PLCs are both to deliver value for shareholders, but PE houses have an exit plan whereas PLC investors may be looking to hold for the longer term and therefore wanting income and capital growth. “Therefore,” Michael says “there tends to be a shorter term EBITDA increase driver in PE-backed businesses.”
When focusing on achieving short-term growth based on an exit strategy, Michael looks to three key drivers:
1. Outsourcing
Michael and his team outsourced their corporate finance services to Accenture, including transferring all financial systems onto Workday ERP systems. Michael points out that the incremental value and relatively low risk from outsourcing are very powerful in EBITDA terms for investors; with the cost of delivery as low as three times EBITDA. Outsourcing enables growth to be achieved at a lower cost of investment and with less risk compared to growth by acquisition.
2. Planning Delivery
Simultaneously delivering outsourcing alongside new systems is no easy task and Michael says “continuity and resourcing are essential to enable a successful program”. As a result, the key account management retained in the business, and their interface with the outsource provider are critical to success. Cutting too deeply and risking a lack of continuity of staff can destroy longer-term benefits and lead to unnecessary costs.
Planning is necessary for acquisitions of small private businesses too, particularly regarding integration, as the new business needs to be mentored and supported by the group functions such as through the provision of standard systems and the delivery of synergies.
As the business goes through a restructuring, the loss of some knowledge is inevitable and requires careful management to avoid operational and financial issues with clients leading to value loss. Michael sees the remaining account managers as playing a key role following a restructure, and as a result, their motivation and retention are critical.
3. Culture
Cultural differences between the two merging companies need to be overcome quickly, as do any blockers to a successful merger. Michael says that to achieve this, “it’s important that a new corporate culture and brand is established quickly and efficiently”. Communication at this time is vital.
As people leave a business during a time of change, motivation levels among remaining employees can fall, and there is a danger they look to the people leading these change programs, some of them on an interim basis, as part of the problem rather than the solution. If not carefully managed, this can lead to hostility among employees that further erodes motivation.
The significant advantage of operating in a PE environment is not having to report to public markets, therefore “focusing efforts on operational synergies and improvements”. Michael goes on to point out that as a result, delays and disruptions do not have to be aired publicly which enables programs to be “protected and delivered”. This gives space within the program to make course adjustments without immediate outside pressure and speculation.
About Michael Williamson
Michael is a seasoned Finance leader working for listed companies, private equity and partnerships. Michael has had extensive experience growing, leading and shaping the strategic direction of businesses including restructuring and turnaround, returning firms to liquidity, growth, increasing profitability and completing private equity transactions.
