A CFO’s Life in Private Equity – Part V - Experience the Bolt-on Ride

In the first four parts of this series Kevin gave us quite a ride; Private equity ground rules, preparing your business for sale, going through the sale process and getting used to private equity as a new dance partner. In part V Kevin prepares you to think and work strategically with tips on finding the next bolt-on business that will create even more value for your firm.

Bolt-ons are great way to increase the value of a platform company. Often a bolt-on company can be purchased for an EBITDA multiple lower than the platform company and with the right integration and value added activities, realize the uptick in EBITDA multiple from the platform company upon sale.

Private equity firms tend to fall in to a couple camps when it comes to bolt-ons:

  • We leave you alone (i.e.. find them in your “spare time”) which can add a lot of stress to a very full schedule for you and your leadership team. Many companies find they do not have the time to look for and vet potential companies which can leave them in an uncomfortable situation at a board meeting when they are unable to answer why there has been no organic growth. Find a way to include this initiative and discussion in your weekly leadership meetings so it is top of mind for everyone. Please leverage the abilities of your private equity firm to help find bolt-ons that are right for your business.
  • We bug you way too often (i.e.. we are trying to learn your business and push you to think about your business differently)
  • We do the right amount of work (i.e.. we know you are often too busy to find the right match and we do that work for you). Ask for this at the outset! The most effective way to have this relationship work is to get your private equity partner up to speed as soon as possible about your business and market and they will be able to find better matches for you.

Since you went through the sale of your own company to a private equity firm, you know the process of what to look for, what to model for synergies, and how the deal could be financed between your company and your private equity partner. Again, your role as the finance leader is unique in that you will be able to bridge the discussion and viewpoints from everyone who is involved in the potential deal.

As you have also improved the financial information and systems in your own company, you will know that the financial processes and records in your potential acquisition company are more than likely weaker than yours, so apply a healthy dose of skepticism when you are reviewing and modelling what a potential deal could look like, as well as having a game plan on how to improve them after the deal is completed.

And after the deal is done, you now know that the hard work begins of integrating them in your short close process, need to set up budgeting and forecasting processes, and start optimizing their working capital processes.

Get Ready to Do it Again!

As mentioned in article 1, most private equity firms create value by selling their companies to a strategic buyer, a larger private equity firm, pension fund or by taking the company public. Your company will more than likely reach the end of the road in your current private equity fund and will be put up for sale. The sale may be a complete surprise to you, but more often than not you will be involved in the preparation of information for potential purchasers as well as the diligence phase while potential buyers dig deeper in to your numbers and processes. And just like before, you have to keep this work secret and not let it affect your day job – exceptional finance leaders can do it!

Conclusion

Over the previous five articles, we reviewed the key tasks you need to do as the financial leader in the private equity process:

  • Get your financial house in order
  • Survive the transition
  • Onboard and get used to a new dance partner
  • Experience the Bolt-on ride
  • Get ready to do it all again

While each deal is unique, the final outcome is usually the same – increase the understanding of your company’s performance, make decisions on where additional value can be created, and ensure that the necessary processes, systems, and insight are in place to realize that value. Various roadblocks were discussed along with potential guides to help you plan and improve your processes.


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