The art of the roll-up, part II: Integrating acquisitions into a roll-up


As a private equity firm completes an acquisition, it’s vital that certain finance and accounting activities at the portfolio company continue uninterrupted, regardless of the distraction that a change in ownership can be.

We spoke with Consero’s Chris Hartenstein on how Consero helps ensure that portfolio companies don’t miss a step from day one.

Buyout firms never buy a company to maintain its status quo; operational improvements and growth initiatives are now standard issue elements of any investment case. They often have extensive plans for the first 100 days, but those radical changes can distract the portfolio companies from some of the basic duties that keep the lights on, particularly in the wake of the transaction closing.

That is why Consero’s Chris Hartenstein argues that private equity firms need to ensure that employees and vendors are paid on time, and that invoicing, and collections proceed as usual. This is why when Consero takes on a new client, they make sure these key priorities are addressed at the portfolio company, so that the buyout firm, and the senior management of that portfolio company can stay focused on the larger initiatives set forth in that investment case.

“You’ve got to protect your cash position,” says Chris Hartenstein. “And while that sounds obvious, in the flurry of due diligence and other closing activities, key tasks can get put off long enough to threaten cash flow.”

Consero Global acts as a company’s accounting and finance department, allowing a portfolio company to leverage their expertise and experience. And that experience includes understanding what the core priorities are from day one of the private equity’s ownership of that new company.

Consistency matters (so make sure people are paid)

“One of the first questions we ask is how do we make sure the employees continue to get paid?” says Hartenstein. “What needs to happen to get their payments out on the 15th and the 30th? Because if there’s any delay, employees will be quick to complain about the new owners, at a time when morale is vital to drive change.”

Even if the process of paying employees is changing, Hartenstein makes certain his staff understands what needs to happen, including who needs to approve the payments, so that employees are paid on time.

Identify the business-critical vendors (and pay them)

Another critical task is paying vendors. But Hartenstein says that given the sheer volume of things to do after the deal closes, they need to determine what vendors get paid first. “Typically, we’ll identify the top ten to fifteen vendors that are business critical,” says Hartenstein. “This could include contractors in the midst of a special project, web hosting services or the internet providers that would disrupt the business if they cut off service.”

Once those vendors are identified, Hartenstein and his team determine when they are typically paid, when they were last paid, and if any are already past due. And then they go about making sure those issues are addressed.

Much like a late paycheck, if the internet goes down or a contractor halts work, these interruptions can give the portfolio company doubts as to the competence of the new owners.

How can the GP say they’re here to make the business even better, when the business can’t do what it used to do without a hitch? That can be an unfair assessment, especially given the slew of extra work that comes with due diligence, closing the transaction, and getting the new owners up to speed.

Cashflow is king (so send out those invoices)

Companies in the lower middle market can really struggle to handle their usual responsibilities with such legitimate distractions, and that means sometimes invoices fail to be sent out, and accounts receivables stall.

After all, few customers are clamoring to pay bills they haven’t gotten yet. “No private equity firm wants to discover a few months into their ownership that cashflow has slowed simply because invoices were too far down the finance and accounting department’s to-do list.”

So Hartenstein’s team looks at the initial customer aging report. “Sometimes these reports aren’t in great shape because the accounting team has had so many other things to do,” says Hartenstein. “But we work to get that in order, identifying customers that need to be invoiced and what invoices haven’t been paid, and start to get the company back up to speed.”

Even with these priorities in hand, there is still a transition period, as Hartenstein works closely with the existing staff, collaborating for thirty, sixty or ninety days, depending on the size of the enterprise. Consero knows the current finance and accounting team is a brain trust of sorts, to be tapped so the transition is as smooth as possible.

Multiple tasks are mission critical

As much as making clear priorities is crucial, some things need to get done simultaneously. Sometimes the portfolio company’s books need to be cleaned up and updated, but the company can’t ignore paying employees or vendors or tackling accounts receivables until that’s done. “That’s why we have separate teams for implementation, delivery and clean-up, so they can be done concurrently,” says Hartenstein. “One person or one group doesn’t need to do it all.”

There are so many moving pieces to onboarding a new business into a private equity firm’s portfolio, that delegating the core finance activities to a service provider like Consero can free up both the buyout firm and senior management team to focus on those initiatives, the initiatives that actually improve the business and live up to that ambitious investment case.

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