Joe Rudkin interviews top PE Treasurer

In turbulent economic times beset by a banking crisis, high interest rates and soaring energy prices, the Treasurer is moving to centre stage which some PE houses are responding to. Having been at PE owned companies for almost 20 years of his career, more recently Madeira worked with the Infrastructure behemoths Macquarie Group and CPP – IP as Interim Group Head of Treasury at the telecoms giant Arqiva while they sold their telecom towers to Cellnex in 2019. In 2021 he was chosen by the PE firms Bain Capital and Cinven to setup the Treasury function as they acquired the Speciality Chemicals business of Swiss pharmaceutical and biotech company Lonza. Since 2022 he has been assisting family-owned Wilko as it seeks to restructure its business. I asked him what value an interim Treasurer can bring to a new acquisition and whether PE houses fully appreciate how much they have to gain.

JR: So, Pedro, you have become the go-to Treasury specialist for Private Equity houses, can you talk me
through the initial value add they were seeking when they came to you?

PM: The main focus is always cash and working capital. Above all, cash forecasting; being able to know how much cash is in the business, where that cash is sitting, and how much cash they will have in three months, six months, 12 months. Knowing where the cash is to begin with is key. The second step is to extract and concentrate cash. That is the easy value add for a Treasurer.

JR: Do you find that once you’re in post you can start to make discoveries that add more value for the PE house fairly quickly?

PM: Generally, yes. We do this by looking at the cash structure, the cash forecast, where the cash is sitting and how we can optimise working capital. We can get cash out of the structure because the PE house will be cash-focused. Quite often we can optimise other things as well, such as banking arrangements, factoring arrangements, guarantee arrangements and sometimes lending. This depends on the PE house – some will want to run the lending very close to their chest. Quite often the PE house will bring their own bank group, and the target will also have their own bank group, so merging banking arrangements and extracting maximum value is another way to generate opportunities for the PE. Often FX tends to be less of a focus but if we dig into the cost, concentration and execution, we can find that is rarely optimised and usually is run in a very decentralised way.

JR: When it comes to understanding what you do in treasury, do you have more engagement from the business or more from the PE house?

PM: The PE house cares about the business so, they tend to be fairly close to the ground and very accessible. Once you move from large corporate to PE, you find that you are in a much flatter structure that is more operationally focused. But you have to balance your loyalties. I have to build a strong network with the company to know where things are and to understand how it works very quickly and sometimes to provide the bridge between as the PE has its own objectives in terms of extracting cash and knowing what the problems are. I’m not there to bring the PE mentality into the business but there is a balance of making sure the business is focused on the right outcomes for the PE house. A lot of businesses that are taken private do not have a good cash mentality but think in P&L terms so, you try to convert the business to think in cash terms and to report with that mentality. That’s a great part of the job.

JR: In these times of turmoil, in the shadow of Covid and with an ongoing banking crisis, do you find that PE organisations truly understand your value or have an established treasury policy?

PM: I will be candid. They understand the value of the Treasurer but I don’t think they fully appreciate all the areas which can add value. That’s not only a PE , it goes for almost everyone I’ve worked with. The current economic times represent a challenging scenario and cash will be very high on the agenda. If you are in a sector which has been very impacted, like retail, cash will be the focus of the entire organisation for the foreseeable future. There’s a lot of pressure from inflation and how to adjust for that, which will eventually pass to wages and that will pass to the cost of inputs. But this situation also creates opportunities in certain areas, for example, if you have a defined benefit pension fund, this is a very interesting time to do something about it.

JR: What keeps attracting you to PE projects rather than flipping back into the PLC world?

PM: Almost every PE that I’ve worked with has been fairly close to the business and so you can escalate things and get decisions taken more quickly. They have a much higher focus on cash and cash discipline which might be either comfortable or uncomfortable for people. And they are more results-orientated. They will be scrutinising management decisions and you might be less independent than you would like. In the big PLC you are master of your own domain – usually no one outside of Treasury understands what you are doing. There’s a level of financing expertise in the PE house so that you can discuss things openly and they will understand exactly where you’re coming from. You can even have fairly technical discussions with your board. That would be far less possible or likely with a PLC board. So, it all depends on how you as a Treasurer like to walk, talk and act.

JR: Where in the life cycle have you been brought in?

PM: Almost every stage, from the company that I am going to work for not existing yet to it has been operating for a while and problems having been mounting. However, there’s not been a project where I have not wished that I was engaged earlier in the process. By being engaged in the due diligence process, I could have uncovered more around the valuation and I could have more accurately identified the current cash situation and possible areas to save. Now when I begin negotiating with a PE/Management about an assignment – even the ones I have worked with before – I give a short wish list so, they know the things we should be looking at.