At Crowe, our approach to working with private equity (PE)-backed businesses is straightforward.
Everything we do is focused on assisting clients to achieve ambitions for their businesses, as well as maximising value for all stakeholders on exit. Our locally-based partner team of Bob Alsop (corporate finance), Jane Mackay (tax) and Christine Dobson (audit) bring a valuable blend of experience of working with fast-growing businesses, particularly in the PE sector. This ensures our clients receive relevant and timely advice supporting them as they grow, with the objective of ensuring they are ‘deal ready’ whenever the exit arises.
In our experience, PE-backed businesses should consider, among other things, seven areas to improve business performance.
Management equity incentives
Introduce management equity incentives, which can work well for PE-backed businesses, if there is an exit/realisation event anticipated. Keep it simple, only involve those in equity you believe will create value, otherwise you risk spending time managing the share scheme rather than the business.
PE corporate structure
Take time to make sure that the PE structure is operating as expected when put in place. If you used a Topco/Midco/Bidco structure, are all the companies actually carrying on the function intended, or did the financing change at the last minute? Consider tidying up or eliminating any companies that are not required in the structure.
When taking decisions about payroll, VAT and corporation tax compliance management, consider what someone doing due diligence on the company might think. Balance tax saving with tax risk and keep up to date with all tax filing and payments. Businesses do not want their tax compliance to become a future price chip issue. Getting it right can save money, while getting it wrong can be very costly.
Consider and assess the exit-readiness of the business at least once a year. Businesses should review this in terms of quality of management information and the overall control environment. This should include IT, finance resources and experience, implementing efficient back-office processes and ensuring the availability of up-to-date business plans, forecasts and cashflows, to maximise the multiple and ensure a smooth exit process.
Continually review on-going accounting recommendations from the audit process to drive value. Reviewing and agreeing the balance of judgements and estimates prior to the year-end will assist in maximising earnings before interest, tax, depreciation and amortisation, (EBITDA) and avoid a future price reduction from a due diligence process.
Focus on value
Make smart decisions early where bolt-on acquisitions are being considered. Focus on the key value drivers for the deal, so as not to waste time and resources that could be used more effectively elsewhere.
Consider seeking specialist business advice where necessary to help reach growth potential.
At Crowe, we work closely with our clients, offering commitment and accessibility to ensure clear and on-going communications. Together we work to ensure that our clients can make smart decisions that provide lasting value.