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EquityFC Blog
Showing entries posted in May 2007
Showing items 1 to 9 of 9
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Private Equity 101 (and one for fun) | 22 May 2007
There's a Janet & John guide to private equity starting in the Telegraph today. I doubt anyone reading this blog will need to have EBITDA explained to them, but I feel this is a clear sign that the Torygraph's readership has expanded beyond the pin-striped Bufton Tuftons who also, I'm sure, know all about what an "asset" is. Mind you, if they're explaining private equity to the AB-group housewives the DT seems to be targeting, things could be about to get rocky. As my old mum used to say, "when the amateurs get into something, it's a sign for the professionals to get out."
More amusing is this guide to how EMI will change under PE ownership (now that the board has agreed a $4.7bn bid from Terra Firma). Nothing about how it might affect the finance function there, but I liked the bonus change: "Demo tapes out, pro-forma business plans in."
Support services for PE | 21 May 2007
Check out this brief mention of a new service from M&C Saatchi "called Accelerator that will work with private equity companies to assess brands and identify deals," says Marketing Week. Interesting. Brands - particularly underfunded or unrecognised ones - can be a major plus for a PE backed business because they offer massive growth potential. It's also another sign that old-school asset stripping is yesterday's news. Yeah, you can still do it, particularly to propertuy-rich companies, but it's boring and strays into ethically questionable areas. The real fun with PE - and the real fun of being an executive at a PE-backed business - is to polish up a forgotten gem or take a brand global. It's those deals - which M&C seems to be suggesting it can help find - that force the PE nay-sayers to shut their traps.
New mid-market PE player | 21 May 2007
With all the talk about big PE funds and consortiums bidding for huge companies (Eurotunnel and BT are the latest - and, if you ask me, most hare-brained - possibilities, although BT denies there have been any approaches), it's easy to forget what a powerful force private equity is and can be for mid-market businesses. So three cheers for former RSM Robson Rhodes managing partner Sukhbinder Heer, who's launched two new funds: "one of them will concentrate on the mid-market in the UK and the other on the hospitality sector in Dubai and P**istan," he told Accountancy Age.
He's still going to find stiff competition for assets in the mid market - multiples are rising for attractive MBO opportunities and there's still not that many top-quality management teams out there. But if he can put together a half-decent deal origination team and make it work, this is a welcome boost to the non-Blue chip part of the market.
PS - for some reason, the content management system has seen fit to asterisk part of the country to the north west of India. Surely not "PC gone mad"?
Friday pick | 18 May 2007
Just a quick pointer to a piece on the role of the modern FD written by one of my successor's at Financial Director magazine. It's not that unusual to see feedback from frontline finance people out there these days - hell, that was pretty much our issue plan every month on Real Finance. But it's a quick read and it's always good to hear how other finance execs are viewing the role.
But where Real Finance (now Real FD) tends to focus on the mid-market (embracing SME and blue-chip FDs and FCs along the way), Financial Director is more BigCo oriented - so from a mid-market PE-backed finance perspective, this material is interesting in that it highlights the differences and similarities between large and smaller company finance functions. So I think most of you would shiver at the thought of all the analyst relations stuff and Sarbanes Oxley - but this, from Steve Dunn, finance director of Microsoft UK, might strike a chord: "In addition to looking for people who have those core skill sets and technical excellence in accounting and finance, you need people who come with a higher degree of business acumen and can partner with other business people at a higher, more mature and senior level."
Or Carolyn Bresh, global head of finance at Reuters who says about her number two role: "It’s... making sure that there weren’t errors in the accounts, the controls weren’t slipping, to allow him to step up and look more outside of the organisation, but feel confident that the department and the team was going to run effectively internally." Good old common sense.
It's all about the quality of the business | 15 May 2007
Over the past few years, as private equity has become more prominant, many FDs and FCs I've met have expressed an interest in joining a PE-backed business. They usually cite either or both of these reasons: they like the idea of being in a high-growth, fast-paced business with freedom to be decisive; and the money. (Actually, they all cited the earning potential.)
My tip? Ignore both of those motivations for a moment. The essential thing for anyone in any job is: do you enjoy it? Example: I know lots of FDs who absolutely love the thrill of a turnaround situation - total adrenaline junkies, they find percussive deadlines and do-or-die financial management a real buzz. And if they're in a PE-backed turnaround, they can do a three year stint, cash out and walk away once it gets boring. (Actually, Jon Moulton once told me he had a financial controller type he used on may of Alchemy's investments. A real bruiser, Moulton knew better than to deploy him for more than six months in any one company - otherwise he'd get bored, and who knows what might happen then...)
But a lot of people would absolutely hate the idea of edge-of-the-seat management for three years. Which is why the first thing you have to ask when you're up for any job - but particularly at a company backed by private equity, where the investors will be extremely, er, "proactive" - is, "do I like the business?" Doesn't matter if it's an MBO that needs to learn to survive outside the corporate parent, a turnaround or a buy-and-build play. If you like the business - if it's fundamentally a good business - you'll have a better shot at success.
Anyway, this all came to mind thanks to a quote from an interview with PE pioneer Warren Hellman that I read in the Wall Street Journal. The salient Q&A is below - but the point is that good businesses are not only much more tolerable from a management point of view (and putting up with it until the exit, remember, is the best way to secure the money that got you interested in the first place), they're also much more likely to survive whatever the effect of the "wall of money" in private equity or the state of the economy.
"Q. People worry there's a bubble in private equity, and when it pops the repercussions will be great. What do you think when you hear "bubble" and "private equity" in the same breath?
A. I think it's true. Last year there were $273 billion in closed private-equity deals. That's clearly a private-equity bubble. The mistake is thinking that it will end today and then to act on it only to watch it not end for five more years. The best thing you can do, if you're good at what you do, is to just keep doing it. At some point a bunch of deals will get backed up. Hopefully the ones we do will be well financed and, most importantly, will be good businesses that can ride through it."
Lambert to the rescue | 15 May 2007
Private equity's been getting some pretty rough press lately. If it's not accusations that they're asset-stripping locusts hell-bent on destorying jobs, then it's warnings that they're starting to overpay for assets. What these largely shy and retiring folk need is someone to come out and fight their corner.
Enter Richard Lambert, former editor of the Financial Times and now director general of the CBI. He's come out swinging for the PE guys, defending their role as company builders and rescuers. According to his former rag, he "said [PE-owned businesses] had created jobs faster than the largest listed companies over the past five years, and warned that any attempt to rein them in by regulation or tax changes could hit all businesses." Which is true, of course, particularly in the mid-market, where the financial engineering tends to be less important, and the real returns come from transformational management, financial focus (which is down to you guys) and growth. And those same mid-market firms also feel any additional regulation more severely, too.
Interestingly, the FT notes, the CBI has been trying to sign up PE firms to its membership rolls. And although that appears to strike a cynical note, I couldn't help noticing that in three broadsheet reports of Lambert's submissions to the Treasury committee investigating private equity, there was also coverage of a separate report issued by the BVCA on the strength of PE returns compared to the performance of the quoted markets. Hmm. That strikes me as a little too cozy...
(For what it's worth, this is the FT's report of those figures: "Returns from private equity were 31.3 per cent a year over three years, compared with FTSE All-Share total return of 17.2 per cent, including dividend reinvestment. Over five and 10 years, private equity returns were 20.9 and 18.7 per cent respectively, against 8.5 and 7.9 per cent in the FTSE All-Share. Large buy-out funds performed strongest, followed by mid-market and smaller buy-out funds. Venture capital, however, underperfomed the stock market over three, five and 10 years.")
Top-class MBO FD steps down | 8 May 2007
Just a quick note to mark the departure from Hogg Robinson of FD John Kennerley. He was brought into the firm pretty much out of retirement in 2000 by CEO David Radcliffe (who had to offer him the job twice) in order to make sure the company's MBO succeeded. Kennerley's CV is incredible (Vickers, Grand Met, Tomkins, Merck - and he was the fix-it FD at PowerScreen) and his focus on cash was almost obsessive. Remember, Hogg is a corporate travel agent that was bought-out (backed by Permira) just a year before the September 11 attacks crucified the travel industry - so it took guts and skill to keep it on the straight and narrow. It successfully re-floated last year after a short postponement.
I interviewed Kennerley in 2002, and it remains one of my favourite FD profiles - email richard.young@gmail.com if you'd like to see a copy. It's a great guide to being a quality finance exec in a PE-backed business.
Communication (again) | 8 May 2007
Whether it's anecdotal evidence or the EquityFC survey of private equity managers, we know that communication is now a critical skill for FCs and FDs. We've tended to focus on the PE-backed finance execs, but there are plenty of cases where this communication issue has surfaced for public companies. Take wobbling plc Sports Direct, which got into trouble last month because FD Bob Mellors has (reportedly) completely failed to undertake his investor relations duties.
This from the Telegraph story: "If he's not capable of dealing with the City then he should be the financial controller and somebody with better City skills should be finance director," said Nick Bubb, retail analyst at Pali International.
Which is true - up to a point. In fact, today's FC has got to be well armed with those same skills too. Polished communication both internally (to the board, the finance team and to the business) and externally (to suppliers, customers and, yes, to shareholders) are part of the territory these days, and if the FD isn't creating opportunities for an FC to learn and practice those skills... well, maybe it's time to get into a role where the FC is encouraged to speak a bit more.
Oh, and the chairman at Sports Direct? David Richardson, ex-FD at Whitbread. I've met him a couple of times, and he's got a brilliant mind. Expect this situation to be resolved well, and soon.
FC: the inflation-buster | 8 May 2007
"Inflation buster"? Well, in the sense that salaries for financial controllers are among the fastest growing in US business right now (according to Business 2.0). While the cool kids all want to be fluffy marketeers, smarter young execs can see the potential in accounting and financial management as "hard core" business disciplines. Better yet, as financial discipline gets tighter (both in privately held firms, public companies and particularly in the ever-growing but increasingly leveraged private equity sector), those skills will become even more valuable to shareholders. Finally (and maybe best of all), solid FCs will be in even more demand if and when there's a downturn.