CFO & Investor Roundtable: Building a Financial Survival Kit for Portfolio Companies

Most CFOs and private equity firms didn’t build COVID-19 into any of their investment cases, but that doesn’t mean they’re powerless to respond. The pandemic is a threat to business continuity, plunging demand and disrupting supply chains, which can eventually lead to liquidity issues, pressure on covenants, re-financing requirements, and increasing third party risk.

Join us for a peer-to-peer discussion with CFOs that have extensive Private Equity expertise. Consero will share observations of our client portfolio as well as hear insights from CFOs about what tools and tactics their finance teams are using to navigate their biggest challenges.

Any CFO and private equity partner will come away with concrete ways to mitigate risks and plan for best and worst-case recovery scenarios at their portfolio companies.

Goal:

Our goal is to share what we are seeing across the companies we are involved with in hopes that it provides a nugget or two to help you navigate your companies or portfolio companies through this crisis.

Panel:

The conversation was be led by Scott Tynes, CEO of Consero. Scott will be sharing trends, tactics and observations that we are seeing in the small to mid-market space during this economic disruption.

Jonathan Holmes, CFO, CCO and Managing Director of BV Investment Partners
BV is a private equity firm that invests in North American companies operating in tech enabled businesses services and IT sectors. BV has invested in 102 platform companies across 10 funds.

Jack McCullough, Founder of the CFO Leadership Council and Senior Contributor to the Forbes CFO Network
Jack has been a CFO for 26 companies. The national membership of the CFO Leadership Council reaches 2,000 finance executives over 27 chapters.

Donald McClure, CFO of PELITAS, backed by Tritium Partners
PELITAS is backed by Tritium Partners. Prior to PELITAS, Donald was VP of Corporate Development / FP&A at Brinks Home Security with responsibilities in capital markets, corporate finance, M&A, strategy and investor relations. While at Brinks, Donald completed a $2.0 billion balance sheet restructuring, $1.9 billion of debt refinancing and $575 million of strategic acquisitions

Michael Abramo, Portfolio CFO for M33 Growth
M33 Growth is a private equity firm that makes minority, growth equity, and venture capital investments in software, healthcare and business services. Mike serves as CFO across multiple M33 Growth portfolio companies (currently AssuriCare and RHI Group) and has 20 years of strategic finance experience.

Drew Powell, EVP & CFO of Defyned Brands
Defyned Brands is an omni-channel, lifestyle-driven health and fitness company with 50+ locations. Prior to Defyned Brands, Drew led various functions at LDR Holding which was acquired by Zimmer Biomet for $1B.

Four Areas of Focus:

  • Business Continuity Planning
  • Cash Management
  • Scenario Modeling
  • Going on the Offense

Business Continuity Planning

Virtually overnight, your company must work and service clients remotely. As this unfolded you had to assess whether you could you run your business today and produce consistent service delivery for your clients.

How has lockdown affected company’s ability to maintain customer-level satisfaction?

  • Significant shifts in consumer demands and behavior impacting sectors from consumer and retail, to manufacturing, life sciences to automotive
  • Organizations that operate with transparency and open communication have inherent advantages when events require quick actions to react and reshape
  • Focus is to build positive customer
  • Challenge is in transmitting the instore transactions to an online experience

What are the focus points in terms of team management for effective business continuity?

  • Prioritize people safety and continuous engagement
  • Work location can be decided based on what suits best to the company
  • Ask employees for the concerns or challenges on operating remotely
  • Reassess if work done by each team can be paused, re-located or continued
  • Leverage multiple channels to communicate information that is in line with public health recommendations on the prevention of pandemic infectious disease outbreak to the employees

What are the challenges in operating the finance function working remotely?

  • Making the finance process cost efficient through increased automation
  • Streamline controls by leveraging technology and reducing manual intervention.
  • Change finance focus from back-office “bookkeeper” to “trusted business advisor” to the business
  • Develop the approach, architecture, roadmap and business case to support the transformation
  • Demand high accountability
  • Ensuring security in terms of data storage
  • Strong focus on streamlining and simplifying finance function to reduce manual intervention

Cash Management

The panel talks about the one thing that is top of mind: Cash. Let’s share some data points on what you have done to strengthen your cash position.

Successful key’s –

  • Maximize the use of government support policies like PPP programs
  • Regional community banks look more reliable and quicker in terms of processing loan
  • Additional guidelines received from SBA and the treasury in terms of cash management
  • SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities
  • Documenting the need for cash or the access to credit in terms of cash balance of the company
  • Loans greater than 2 Million are going to be audited
  • Keeping people fully employed is going to be beneficial
  • Ventures to keep their debt burdens at manageable levels
  • Businesses that compromise on growth temporarily by keeping indebtedness low are likely to sustain a good momentum of growth over the longer period
  • Determine whether the organizations have adequate visibility into their cash positions, determine their cash needs, and address any shortfalls
  • Develop a plan to sustain a stable liquidity position over the next 12 to 18 months and beyond

Internal steps to strengthen the cash position –

  • Coding the Sick leaves related to Covid-19 separately from that of PTO and documenting it with an anticipation to get some funding
  • Clear, transparent and timely communications are necessary when creating a platform to reshape the business and to secure ongoing support from customers, employees, suppliers, creditors, investors and regulatory authorities
  • Working smoothly with bank and good communication may help as more affluent bank customers can gain access to better interest rates than what is advertised to the general public

Covid-19: Rent mitigation and negotiations between landlords and tenants

  • Requests from tenants to pay less rent for a fixed period of 3 or 4 months, for the period during which the Covid-19 virus affects business
  • Remainder/Extension of lease period
  • Request to suspend rent payments for a short period
  • No free rents, short term affirmation depends on capital structure off the landlord

Scenario Modeling

In the current environment, more than ever CFOs depend on accurate financial data to create scenario models that they can trust.

A lot of public companies are saying they can’t even provide forward looking forecasts right now. Are you planning on a V shape, U shape, L shape?

  • Evaluate short-term liquidity. Companies will want to instill short-term cash flow monitoring discipline that allows them to predict cash flow pressures and intervene in a timely manner
  • Identifying expenses which are not critical to servicing your clients with no interruption
  • Be Patient in securing investments
  • Maintaining healthy relationship with contracted parties and banks
  • Analyzing cash position for 3 months down line to know the facts
  • It is important to stand united and help one another in whatever way we can, stay safe and stay healthy
  • Strong emphasis on reducing the overall costs and reshaping the finance function
  • Revisiting capital investment plans to postpone investments until the situation improves
  • More than survival it is good time to show strength and liquidity
  • Time to think on after crises opportunities
  • Once the COVID-19 outbreak is controlled, companies will want to review and renew business continuity plans. They will want to assess how existing BCPs are working. If there are deficiencies, companies will want to identify root causes, whether it’s timeliness of action, lack of infrastructure, labor shortages, or external environment issues. Companies will then want to consider putting new internal guidelines in place based on lessons learned, as well as solid contingency plans to build resilience and better respond to future crises.
  • Cutting costs not talent – While the hospitality and travel industries have experienced the biggest impact, other industries have been feeling the weight as well. Cost-cutting is the need of the hour, and it does not have to be a precursor of retention.
  • Furlough the employees is best option vs. lay-off
  • Furloughed employees will have the opportunity to return to a comparable position at comparable pay once

Going on Offensive

Winston Churchill said: “Never let a crisis go to waste”.  Actively reallocating corporate resources is even more important in a downturn than it is in good times.

  • Private equity is under less short-term pressure
  • Having PE as a partner increases the company’s capability
  • Extra capacity that PE shops has helps client get cross those finish lines
  • Private Equity firms provide flexible funding solutions and have all-time high levels of available funds (“Dry powder”)
  • PE firms are now looking to allocate capital to businesses with a solid plan and robust operations