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The main purpose of disclosure is to ensure that the PE firm and the portfolio company make informed decisions and that all stakeholders, both inside and outside the firm, are provided with timely and accurate information. Disclosure is a broad concept and serves many purposes. A great deal of transaction information is already available from the operating business. In order to make informed decisions, it is necessary to present the information in a way that allows the company’s performance to be measured against the targets set out in the business plan. It is important to get consistent information across the group. We help to set up information flows, select systems, recruit qualified staff and set up planning and control. Of course, we work together with the company’s management and (IT) partners.
If the company has an ERP system, commercial and operational management information can often be extracted very well from it. However, especially in a buy-and-build environment, acquisitions usually involve multiple management systems. A shell over the systems combined with a consolidation package for financial reporting or a periodic reporting system for all financial and other strategic information are possible solutions.
Group reporting
In all cases, we help the company to provide the relevant information in a timely manner. However, it takes us at least three months to set up a reporting system for the group that the company can use. The first priority is compliance information, such as reports to the PE firm and other funders, and the ability to compile financial statements and tax returns within the group. In the first few months, due to the testing and development time of the software, you often have to rely on Excel, which is not bad as you still need to develop a template for the data to be provided in a similar way by all the companies in the group. Reports can then be programmed based on the data supplied via the template. What is needed for meaningful reports from the information system is not only the actual figures after acquisition balances, but also the history as it exists in the data room and the budgets. This allows both the TTM trend and the budget to be measured. One of the specific aspects within private equity is the distinction between EBITDA with and without addbacks (one-off expenses directly related to the acquisition).
Of course, the choice of a group reporting system depends on the (international) environment of the company. In our experience, this is often underestimated. Understanding how to compile group figures is key to making such a system work well. The strength of such a system is that it can handle multiple organisational structures (legal, organisational, by country, with and without acquisitions, etc.) and perform consolidation (currency translation, eliminations, etc.) correctly in all these structures. Choosing a system and setting it up to produce a good cash flow report, for example, requires specific knowledge. We are happy to advise you. In all cases CM&P works with the company to ensure that the minimum compliance requirements are met. On several occasions we have prepared the first annual accounts and annexes in Excel and Word or otherwise manually.
Operational systems
Ingewikkelder wordt het bij een carve out waarbij de operationele IT-services op termijn worden stopgezet door het verkopende bedrijf. Hierin voorziet een Transition Services Agreement. Een van de zaken die CM&P in een transitie kan begeleiden is een systeemmigratie.
Things get more complicated in a carve-out, where the operational IT services are eventually discontinued by the selling company. This is where a Transition Services Agreement comes in. One of the things CM&P can manage in a transition is a system migration.
Finally, an understanding of how cash flows are generated in each business unit is essential to the operation of the business and (eventually) to the sale of the business. In all cases this involves a process of very detailed planning and budgeting. CM&P’s partners are often involved in these processes, which lead to an understanding and improvement of value creation in the businesses. This involves the use of various systems such as Excel at location level to the capabilities of an ERP system such as SAP and software that pulls data from various underlying systems.
