EquityFC Blog

Management churn: an opportunity | 13 April 2010

We've been talking recently on the blog about banks incentivising PE firms - and PE firms incentivising management - to keep going despite bad results, iffy debt scheduling and missed targets. But after chatting to an interim FD mate yesterday, it looks like the downturn has had another effect on management teams: bloody-mindedness.

Ed specialises in turnarounds, so he's used to turning up, identifying problems and coming up with a "like it or lump it" fix. (He used to joke that his first job on an assignment is to find a desk in credit control - it's amazing how much better things can look once those guys have been hitting the phones all day for two weeks.) In better times, he tells me, you'd often get a situation where the incumbent management would bristle at the proposed changes and walk out - usually to a job with another company "across the street".

For Ed, that was often a problem solved. Those were usually the guys who'd caused the business to run onto the rocks and bringing in fresh blood can be crucial to fixing the strategy, the culture and the day-to-day running of the company.

Now? Not so much. Thanks to lack of management churn - and a shortage of growing businesses - management teams are clinging onto their posts for grim death. That means more fights in the boardroom, more diplomacy and psychology ("the first step to recovery is admitting you have a problem") - and more hassle.

The good news if you're looking for a PE-backed finance job? The banks are still calling the shots on many deals and they want a solid finance function to work with. And as Ed's busy schedule attests, interim FDs and smart financial controllers are much in demand to fix basically sound companies that have lost their grip on the financials. Just make sure you're ready to handle the fifth columnists in the board room...

Back to top

PE firms pay it forward | 8 April 2010

All the talk of PE-backed businesses facing a debt roll-over problem thanks to reduced liquidity in the leveraged loans market has been a little overblown. True, it's not just the $500bn owed on big LBOs that falls due between now and 2015 (that's just in Europe). Reuters quotes Jon Moulton as saying £30bn pounds of debt in small and medium-sized British companies needs to be repaid in the next three years. That's nothing to be sniffed at.

But I watched an interesting snippet (podcast? vodcast?) from Standard & Poor's earlier this year pointing out that although the banks are wary of making new big loans to PE-backed businesses - largely thanks to a more conservative approach to their own balance sheets, but also because of THE RISK! - other sources of finance are coming in. A variety of investment funds need yield, and higher-risk LBO loans can deliver.

Better yet, said the S&P guy, many lenders are cutting PE-backed firms some slack in the interim. What choice to they have? Sure, in really bad cases they can grab the equity, but that rarely ends well. So all sorts of mezz-type finance and coupon roll-overs get layered in and everyone hopes for the best. (Good news for finance functions, politically at least. You can get a lot of status for carrying that much water...)

PE firms are also paying that (rather forced) good-will forward bt being nice to entrepreneurs and their teams. I noticed this entry at a Wall St blog on the subject of VC-backed management scoring their bonuses even if things have gone a bit "off plan":

I thought it was pretty funny how VCs have to handle entrepreneurs with kid gloves these days, if for no other reason than if you won't another VC will. That probably speaks volumes to the fact that there are too many venture capitalists chasing too few deals these days. But I was more struck by the expectations of the entrepreneurs than I was by how the VC's deal with them today.

Interesting. In short, if you're in a good team with a business that has obvious potential, perhaps the rewards (bonus, equity etc) will come even if you've been troubled by the recession.

Back to top