Operational Challenges & Best Practices in mandate execution: PE/VC investee companies

Practices

Challenges

Seemant Shrivastav Associate Partner 14th December 2012

ixCFO Services P. Ltd.

Schedule
Current trends in PE/VC industry Positioning of Shared CFO Typical PE/VC investee companies mandates How to structure/approach such mandate Best practices Case studies

Summing up
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PE: 2012 YTD Trends

Utilities Transportation 4% Media 5% Retailing Diversified 7% Financials 7% Consumer Services 8% Capital Goods 9% 5% Real Estate 24%

Software & Services 20%

Health Care Equipment & Services 11%

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Sector wise deal size

(source: Vccedge)

Deal Trends

Source: Vccedge

Trend Analysis
IT/E-commerce losing flavour Healthcare, Retail, Media and Consumer/ Fast Food sectors are emerging sectors Bad investments of 2005-2008 haunting the industry Declining deal counts and values Too much money chasing too few quality deals Emphasis on strong due diligence, rigour Role of finance function in spot light
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Positioning: Shared CFO

Our CFOs can thrive in following scenarios PE companies with topline up to ` 100-150 crore Absence of senior finance team or absence of desired experience, skill sets Accounts & finance reporting, hygiene is absent Lack of systems & processes Dynamic, evolving environment Companies slated for investment by PE/VC
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 Create & update 3-5 year biz plan Introduce, improve MIS reports focussing on

Typical PE/VC investee mandate

Division wise, product wise performance vs budget Stock, receivables collection with aging Cash flow (actual & projected) Balance sheet snapshot Trend, ratio analysis

Analyse financial performance, suggest improvements by

Improving Cash conversion cycle, managing stock, receivables, WC management Cost control & optimisation Putting in place systems & processes

Compliance matrix, exception reports

Approach for mandate

Understand the PE funds & management requirement Create an engagement matrix targeting key focus areas and actionables Establish rapport with management team, finance team & key stake holders Be the bridge between management & PE investors Hold periodic review meets with PE & management Take course correction measures based on review meet Last but not least; Hands on approach for all mandates

Best Practices
Strong technical expertise, including P&L management, cash flow forecasting Entrepreneurial and self-starting orientation Develop, execute and focus team on value creation Risk orientation and sense of urgency Thrive on change and solving problems Excellent communication and consensus-building skills to keep multiple constituencies happy Ability to manage the company toward the exit that creates the most value for the private equity firm Fortitude: the confidence and resolve to be an advocate for the management point of view
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Case Study: Company A

Co. A is an apparel manufacturing company, PE acquired 25% stake in 2007 with a mandated exit for 2012. Absence of good CFO, resulted in lax systems process, poor MIS and the company underperformed vs peers. Post assignment in early 2012, we set right the reporting system, designed right set of templates for MIS. Identified & addressed issues like production wastages, slow moving inventory, improvement in DSO etc. All this time we engaged the management, especially the CFO that the whole exercise is for their benefit. The detailed business plan was finalised with cooperation of finance team and the PE is on course for strategic exit having appointed an investment banker.
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Case Study: Company B

Co. B, an early stage startup funded by angel fund had given us a mandate on Ix, Tx & Fx offerings Company had lost 2 CFOs in a short span of 6 months and needed to create a business plan for round II of fund raising We were able to understand the business in a short span of 2 weeks and create a business plan within 1 week Further a good example of team work was demonstrated when Sanjay was able to take over the assignment during my absence
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To Sum up
Unlike family business, PE owned companies come with their own different set of challenges Understanding the pulse of PE & Company management, their requirements and delivering on them would go a long way in a mutually rewarding mandate

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Thanks

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