Too often, the work of finance and accounting teams within growing businesses seems perfunctory and inconsequential. That remains true even in the high-stakes world of private equity investment, where innovative, entrepreneurial executives court detail-oriented investors. Before making a bid for a merger or acquisition, there’s no question that prospective investors will want to see the candidate firm’s accounting and financials up close. However, too many executives and sell-side stakeholders underestimate just how critical that financial data is – not only the accuracy of those numbers, but their presentation and context.
“Private equity investors know the devil is in the financial details.”
Even when bottom-line numbers are all in the black, private equity analysts know as well as anyone that the devil is in the details. If the people pitching a company for a sale or investment think otherwise, or if they simply don’t have an in-depth understanding of their firm’s financial situation, the deal will fall apart. On the other hand, businesses going into deal talks with a firm grasp of their accounting and financial positions not only close deals faster, they earn even larger valuations as a result.
To discuss how great finances can work as a marketing tool for exit-ready businesses, the Austin Technology Council hosted a panel of experts on the subject, including Consero Global CEO and co-founder Scott Tynes who led the Feb. 21 talk.
Other guests included:
- Brett Bowman, CFO of Main Street Hub, a marketing services company recently acquired by GoDaddy in a multi-million dollar deal.
- Autumn Manning, co-founder and CEO of YouEarnedIt, a human resources services platform.
- Charlie Plauche, Principal at S3 Ventures, a venture capital firm managing a portfolio worth more than $400 million.
Advice for executives: Clean financials drive value
According to Tynes, companies that prove a strong grasp of their finance and accounting functions – and that have the performance to back up those claims – tend to draw higher valuations from equity investors. Those that haven’t reached this level of F&A maturity, on the other hand, usually find it difficult to raise capital, and often lack an exit strategy that benefits founders and shareholders equally.
“Imagine you are at home and a visitor rings the doorbell unannounced,” Tynes said, comparing equity investor prospects with homebuyers. “This is what it is like to work with investors. Your house is messy but you have to invite them in.” Therefore, it stands to reason that much as with a clean and tidy house, a well-organized and buttoned-up F&A function will convince buyers that a company is worth the asking price, or perhaps even more.
Another key piece of advice offered by Tynes to CEOs and CFOs of companies on the PE market: Use your financials to tell a story and make it a compelling one. Executives need to ask how the metrics align with the story they want to sell to investors, or if they even have all the right metrics to begin with.
All in all, the new role of the finance department as a marketing tool in the private equity process is representative of the ever-evolving responsibilities of modern CFOs. Without a financially innovative mindset, executives can’t expect to find success from a potential acquisition deal.