Preparing For An Exit

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Preparing For An Exit
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This article is useful to PE Funds and CXOs of
PE invested companies who are eyeing an exit in
the next 12-18 months and looking to strengthen/
streamline decision support systems, squeeze cost
reductions, enhance governance mechanisms,
implement risk management systems which will help
them build a case for better valuations closer to
the date of an exit either through listing or
through sale to another PE fund.
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How does a company get itself exit ready?
Unfavorable market conditions and not so good
business environment are today stated as primary
reasons for PE funds and companies not being able
to get an exit. A recent article in the
Economic Times states that there are close to 630
PE invested companies, which are waiting for an
exit. There is pressure and increasingly
frustration building up from the LPs to get them
an exit. In a scenario such as this, is it all
gloom or is there something that companies
waiting in the exit queue could possibly get done
over the next 12-18 months to maximize the
chances of the exit happening? The more
fundamental question is Have Companies and Funds
looked at all possible means internally to
strengthen the company from within? Given the
tough external environment and uncertainty
regarding the extent and timeframe of the
turnaround, is there a case for companies to
spend time looking inwardly?
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Shashank was getting jittery 6 months back. It
was a year since he has taken over as CFO of this
leading Garment Company, which was also invested
by a PE fund. The investors were past the due
date on the timeline to exit the business since
the business environment had become tougher over
the last couple of years with forex fluctuations
and competition from smaller players eating into
the market share. Attrition levels across all
categories also saw an increase credit lines
were tougher to obtain and cost of operations
were on the rise. Shashank was increasingly
getting a feeling that he was gradually losing
grip of the Business Parameters that he was
once tracking. The attrition and the subsequent
re-organization in the roles had created data
entry back logs, non adherence of system
protocols, lack of general co-ordination with
both external (customers, suppliers) and internal
stakeholders (business heads, functional heads)
which was turning out to be what seemed a time
bomb waiting to explode.
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Shashank was reminded by all and sundry including
his fellow CFOs with whom he spoke that the
state of affairs of the company was only
reflective of the economic conditions that seemed
to have enveloped us and that nothing much could
be done till such time the situation improved.
Shashank had two options (1) to bide his time
till things got back to normal externally or (2)
to get the company geared and look at what could
be done to improve things internally. He decided
to take the second option with the confidence
that when things improve his company will be
ahead of the curve as compared to so many others
who are looking for an exit/ waiting for things
to happen and that they would then be able to
ride the wave at that point in time.
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Shashank decided that he would manage this
through a combination of in-house recruitments
and by bringing in Finance Specialist Agency.
The objective of doing this was to ensure that
the in house recruitments will continue to push
the companys day to day finance agenda while the
Finance Specialist Agency plugs the existing
gaps and works on multiple pain areas with
clearly defined timelines. Shashank by doing so
had also smartly reduced his chances of failure
by creating multiple smart options. The move
also allowed Shashank to focus on core CFO
activities and also reduce the risk of attrition
by having a back up in the form of an agency who
were available to scale up their teams in case
of a need.
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Shashank breathes easier these days. The last 6
months has been a lesson not just for him but
also for all other senior managers within the
company. The journey just didnt end with
bringing additional people in, it also involved
defining expectations and constantly measuring
them to identify exceptions. Some of the issues
of the past like getting visibility into business
performance, data entry backlogs, adherence of
system protocols and co-ordination with
stakeholders are now behind Shashank. He now
spend a lot of his time with his CEO in fine
tuning the business model, with the investors in
explaining the changes in the business, with the
functional heads in streamlining pricing models,
cutting operational costs through efficiency
improvement etc.
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