Graceful exits: Why Private Equity firms embrace Finance as a Service to ensure a swift and smooth due diligence

Back Office Holding Back 3

Private equity firms shouldn’t discount the role that sound financial operations and processes can play in selling a portfolio company, says Chris Hartenstein of Consero Global.

If fundraising was the sole metric of success, private equity could take regular victory laps these days. But investor enthusiasm for the asset class only speaks to their faith in future performance. Exits remain the sole arbiter of a firm’s track record, and GPs have been keeping assets longer these days, holding out for the best possible opportunity to sell. So when the right buyer arrives, it’s even more important that the due diligence process is swift and smooth.

Which is why we’re talking with Chris Hartenstein, Managing Director of Consero Global, to discuss the role that financial operations can play in creating the best impression for a potential buyer. Consero provides a Finance as a Service solution to a growing number of private equity-owned companies and has assisted GPs during every step of the investment cycle from initial due diligence to exit.

“One of the biggest factors in completing a sale is trust in the financial statements,” says Hartenstein. “If the buyer can trust that those numbers are reliable, they can trust their valuations that determine the offer are solid.” Most times when Consero begins working with a portfolio company, it is discovered that the financials are in disarray. “Sometimes we find that a Company hasn’t reconciled some accounts for six months or even a year,” says Hartenstein.

That means that a Company has to spend the time preparing the numbers for any buyer to review, and that can erode the enthusiasm for a given asset. But Hartenstein argues that once Consero has stepped in and deployed their processes and procedures, the books are quickly buttoned up and numbers are easily accessed. “When a buyer asks us for a bunch of schedules and we’re able to deliver them within the day, that makes quite the impression,” says Hartenstein. In one instance, Hartenstein saw a deal close thirty days after the LOI.

For a lot of companies in the lower middle market, it can be difficult to run the finance operations with best in class processes. They might have grown too quickly for their current financial staff resources, or simply not needed the rigor to process vendor bills or client invoices any faster. It’s one of the reasons that buyout firms will often tap Consero to step in and tackle the financial operations of a portfolio company they’ve just acquired.

One of the tools that Consero uses to “button up” the books, is ControlDock™, Consero’s proprietary system that works to calendar every task within the finance function and place it in a workflow. Nothing is considered closed until it gets the appropriate approvals from Consero, or the client’s Controller or CFO.  There are hard closes every month, with reviewed support schedules to match.

“This way, nothing falls through the cracks,” says Hartenstein. “And when a buyer needs a certain data point during due diligence, it’s right at our fingertips. SIMPL® is Consero’s financial management console that gives clients 24/7 access to everything from financial dashboards with real-time information at a glance to transactional level details and support documents all in one place.

Consero makes financial data accessible so the team isn’t drowning in requests for information. Working with Consero means that during a sale process, the portco’s finance staff doesn’t have to create anything from scratch.

Successful Exits: A case in point

A recent example of this is when PayPal, Inc. acquired Consero’s client, a payment processor named Hyperwallet.

  • Client Name: Hyperwallet
  • Size: $65M revenue with 325 employees
  • Industry: Online Mobile Platform
  • PE-backed by: Primus Capital
  • Acquirer: PayPal, Inc.
  • Exit Transaction: $400 Million
  • Pain Points before Consero:
    • Frequent turnover in finance function, CFO too consumed with daily financial operations and not on strategy,
      financial reports  were created in Excel and needed more analytics
  • Consero Solution: Finance as a Service
    • Consero handles all back-office finance & accounting  (transaction processing, closing, reporting) and FP&A
    • Benefits: Greater business continuity, time back to focus on the business, confidence that financials are timely
      and accurate, faster and more informed business decision making, optimized accounting
      policies/procedures/process flows
  • Savings compared to In-House: 30%
  • Client Highlight: CFO, Hyperwallet
    • “With Consero, I was able to focus on the transaction and not worry about getting the financials in order. Their
      professional finance team and processes inspired confidence for everyone involved in the due diligence

Consero’s Finance as a Service solution can be kept in place even after an exit transaction. “In many cases, the acquiring firm sees how efficiently and accurately we handled the finance function for our client, so it isn’t a pain point for them,” says Hartenstein.

Frequently, even when smaller companies are acquired by larger strategic buyers, Consero remains on board. “Often, the buyers simply have more urgent priorities,” says Hartenstein. When another private equity firm is a potential buyer and they have an accounting firm like PwC look at the financials, they soon realize there’s no need to restructure the financial operations. “Even if the PE firm ends up replacing the CFO, we have a training process to get them up to speed on how best to employ us,” says Hartenstein.

Successful exits are never merely about how buttoned up the books are, but one way to look at the value of sound financials is that the numbers tell the story of all the value a private equity firm created during its ownership. If that story is confusing or poorly told, or not substantiated quickly and adequately, the buyer may not always wait around for the seller to get their story straight. And that’s certainly a threat to a happy ending for that investment, or that firm.

Learn more about how Consero helps investors and their portfolios today.

Consero FaaS: Disrupting the Outdated Traditional F&A Model

  • Cash to GAAP conversion
  • Clean-up work
  • Interim oversight & support
  • Accounting software Implementation

Build it Yourself Solution

  • CFO / Interim CFO
  • Consultants / VARs

Consero FaaS Solution

  • CFO / Interim CFO
  • or Consero Interim CFO
  • Consero Setup/Transformation
Ongoing F&A
  • Monthly financials
  • Daily accounting support
  • Management reporting
  • Integrate add-on acquisitions

Build it Yourself Solution

  • CFO
  • Controllers & Accounting Team
  • Enterprise Accounting Applications

Consero FaaS Solution

  • CFO
  • or Consero Fractional CFO
  • Consero FaaS Enterprise F&A Software and Services

New PE Platform Investment F&A Challenges

Founder Owned Company Accounting:
  • Existing accounting done on a cash/hybrid basis
  • Run on SMB accounting software and other disparate applications
  • Inability to produce auditable financials
  • Lack of know-how to develop projections & KPIs
  • No consistency/structure to customer contracts
  • Underqualified staff
  • Non-scalable manual processes
Carve-Out Accounting:
  • Required to move off parent company accounting applications in a timely fashion
  • Have to build an entire F&A team
  • No documented operational policies and procedures
To Optimized Finance & Accounting:
  • Monthly financials available in 5-10 business days
  • Audit and diligence ready support details
  • Integrated enterprise grade accounting software
  • Budget and forecast reporting
  • Business KPIs
  • Efficient & scalable processes for rolling in add-ons