EquityFC Blog

Beyond finance | 21 December 2009

Private equity firms need their portfolio finance teams to be sharp, accurate, open and disciplined. But finance execs (in any type of company) must never forget the source of the numbers they report. So this article in the New Republic about the dangers of a finance-skewed management style is well worth a read (potted version at the site that pointed me to it, Boing Boing).

In short, it says America has got rubbish at manufacturing because MBAs have come to dominate management teams - and finance (rather than production or logistics) has come to dominate MBA courses. As a cheerleader for finance functions, I don't see this a critcism of FDs or controllers. Instead, it's a rallying cry for rounded FDs and FCs, people who have a good grasp of operations and other disciplines. In my experience, they tend to be better at the finance bit and more suited to CEO and chairman roles (if that's what they want).

I'm not alone. An old friend Jim Weight used to be CFO at Westminster Healthcare and HIT Entertainment, so he has bags of PE portfolio experience. Now he’s working with EPIC Private Equity looking for turnaround situations, where a vice-like command of the finances is job one. But he argued that the recession has forced FDs to look more broadly.

“A real understanding of the commercial aspects of the business is important too,” he says, “because without that you can’t really achieve a key attribute we look for in an investee FD: an ability to forecast. If you go to the bank and say, ‘I’ve been doing lots of work and I think I’m going to have a cash problem in 18 months time’, usually the reply is that you can have as much money as you like. If you’re that on top of your business, then you’re exactly the kind of person they want as a client.”

Great point, Jim. Get your hands dirty out in the business and you'll be a better - and much more valuable - finance exec.

Back to top

Social media for FDs | 2 December 2009

How's your LinkedIn profile? Got one? Updated it recently? I ask because I was emailing an old FD contact yesterday and he mentioned he was tarting up his profile on the popular business network. (It's like Facebook for suits.) He's CFO of one of the biggest companies in Austria - and has a track record as long as your arm as FD at mid-tier public companies and subsidiaries of major brands. So I wondered why he was bothering.

Here's how he replied: "I had lunch in London with an old friend who had checked me out on Linkedin and mentioned that my profile suggested I had only had two jobs. Given that I did not even know I had a profile, I was quite impressed. But he, being a headhunter, said this was terminal for my non-exec aspirations as Linkedin apparently is 'all the go' in the search community."

It's not uncommon for people to have a dormant profile. Perhaps this CFO accepted a LinkedIn invitation via email a couple of years ago, and never did much more than acknowledge he'd worked with the people connecting to him. But whatever the reason, a quick update of "positions held" and skills is on his to-do list now.

The point being: you can be checked out online, so you may as well make it easy for people to see a rounded version of you there. I'm not saying a PE firm or the guys at EquityFC and EquityFD will see it as a clincher (far from it!). But it can't hurt to present yourself in a forum that some people might be using to evaluate the basics about you.

Back to top

In for the long haul | 1 December 2009

File it under "no surprises": Q3 2009 has been one of the worst quarters on record for buyouts. So says the Centre for Management Buy Out research (CMBOR) in its most recent survey. According to Nottingham University fellow Rod Ball (a researcher at CMBOR): "In terms of the number of deals, we’re going back to mid-1980 levels; in terms of deal value, we’re back in the mid-1990s." Deal volume has plummeted from almost 700 in 2008 to fewer than 300 in the first nine months of 2009.

Is there any good news in the numbers? Well, secondary buy-outs have plummeted as PE firms play cagey with each other in the absence of debt to justify deal mechanics. I think that's broadly good - SBOs do skew the market a bit and can often come across as being justified by financial clout rather than operational excellence.

More interestingly, two-thirds of buyouts so far this year have been under £10m. That is very good: it shows that smaller and potentially high growth companies are still in vogue - and they make the best businesses for broad-minded FCs and FDs, too.

The decline in deal activity is forcing many PE firms to think long-term - which is also good for smart financial managers. Lots of other people think so, too. When PE firms go long, they look for operational gearing, not financial. That means a more interesting and creative role for the finance function, a better shot at job security and - perhaps best of all - a chance to learn a huge amount from the operational experts that the PE firm will wheel in to help effect performance improvements.

Yes, your shares might gather a bit more dust on the shelf. But when they pay out, it'll be a much sweeter taste in your mouth - and you'll be more versatile as an FD to boot.

Back to top