Sudden Scale

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As Seen in CFO Studio Magazine Q4 2016 Issue

 

Boosting the ROI from a roll-up

 

Expect more roll-ups as baby boomer entrepreneurs decide to sell.

Roll-ups involve the acquisition of several businesses over a short period of time. A one-stop shop can be created if the acquired businesses are complementary. Geographic coverage can be accomplished if the acquired businesses are competitors. Either way, a roll-up is an ambitious, capital-driven path to growth. The corporate CFO is typically expected to lead due diligence, conduct valuations, and find cash. It is equally important for the CFO to remain engaged after the deal(s) are signed.

Imagine what is involved when multiple businesses are acquired quickly. In addition to the strain on capital, integration involves people with divergent philosophies, companies with varying cost structures, and customers with different expectations. Former business owners/entrepreneurs won’t respond well to micro-management or nagging. Entrepreneurs choose to participate in a roll-up in large part because they crave strategic discussions, effective global marketing, competent financial management, and rewarding peer relationships.

If you are the corporate CFO during a roll-up…

Delegate

Once deals are made, the priority is the generation of profit from the combination of the acquired businesses. Integrating disparate businesses takes time (therefore money), so most corporations make only minor adjustments during the first year. The corporate CEO uses the first year to evaluate the leadership of purchased companies. Frankly, the CEO can quickly feel like the foster parent of squabbling children who all crave more attention.

The corporate CFO is asked to standardize and centralize accounting to look for possible cost efficiencies. In my experience, the first year is more productive when the CFO delegates documentation and analysis of past and current performance to the Controller. That way, the CEO, the CMO, and the CFO can all focus on creating the future. Together, they will consider important questions about what kind of customers will value a one-stop shop, which capabilities of the individual companies can be leveraged, and how pricing should be approached for bundled services.

Stand Up

In a publicly traded corporation, there will undoubtedly be pressure from shareholders and Board members. It is less likely that the corporation will make questionable decisions when the CEO, CFO, and CMO confer and involve the entrepreneurial leaders of the acquired companies. For example, it could be tempting for one executive to conclude that everyone should back off of marketing and sales to focus on the top few customers to squeeze out as much short-term profit/cash as possible for the corporation. With three future-focused corporate executives, the risks associated with taking a shortsighted approach like that would at least be discussed. Forcing the entrepreneurial leaders of acquired businesses to live with bad decisions erodes credibility, trust, communication, and profit.

Earn Trust

Leaders of acquired businesses are often susceptible to “seller’s remorse.” Their financial livelihood and professional reputations ride on their decisions to sell. Being part of a corporation with lousy marketing, inconsistent rules, and/or hidden agendas can lead a former president to just focus on his/her earn-out. They can become reluctant to accept more responsibility. And they can become paranoid that valuations impacting earn-outs will not be computed fairly. That reaction can be prevented if the CFO provides transparency, consistency, logic, and fairness.

The ROI of Employee Engagement

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As Seen in CFO Studio Magazine Q3 2016 Issue

PERFORMANCE AND FINANCIAL BENEFITS OF A WORKPLACE THAT EMPLOYEES ENJOY

A workplace culture that is perceived as positive and vibrant has proven financial benefits. A Chandler Macleod study, “Shaping Organisational Culture for Improved Business Performance,” quotes 2013 research from CareerBuilder revealing that 73 percent of candidates interviewed considered a slightly lower-paying job in a company if their friend said it was a great place to work.

The same research also showed that prospective employees were more attracted to a company that had a reputation as a great place to work over factors that include the company’s reputation for great products, services, and people, or even its reputation for being prestigious. An organization that is recognized as a desirable place to work provides an advantage in attracting and retaining talent.

Gallup’s 2013 “State of the American Workplace” study estimates that active disengagement costs the United States $450 billion to $550 billion per year. These alarming figures reinforce the importance of keeping employees loyal and engaged. Some forward-looking corporate leaders are doing this by using workplace design to communicate corporate culture and brand values.

“Fully Engaged,” a report released by JLL’s Strategic Consulting, defines engaged workers by the effort they bring to their work practice. These employees develop a connection to their organization, and this makes them more likely to develop innovative practices that could result in competitive advantages for the company. Greater engagement not only improves the bottom line through increased customer satisfaction and productivity, it also helps to lower employee absenteeism and turnover. Employee retention is a critical financial advantage, as each replacement can cost up to 1.5 times the salary of a position.

John P. Kotter and James L. Heskett’s 2008 book on their study of 207 organizations over 11 years, Corporate Culture and Performance, found companies that actively developed their culture returned 516 percent higher revenue and 755 percent higher income. Corporate culture refers to the shared values, attitudes, standards, and beliefs that characterize members of an organization.

To ensure that workplace design fosters corporate culture and employee engagement, many companies have taken steps, including:

• Creating workplaces with alternate space configurations and technologies that are aligned to specific business processes. This approach gives employees control over the way they prefer to work. People do their best work when they feel trusted to carry out tasks in their own way.

• Incorporating company values into space design.

• Incorporating plants and natural light, as studies have shown the links between light exposure, increased productivity, and employee happiness.

“How a workspace informs and inspires an employee has become a significant expectation for corporate leaders,” says Jerry Sullivan, senior vice president of JLL’s project and development services. “The new workspace that fosters greater interaction, flexibility in work uses, and includes more innovative approaches to communication and collaboration, has become vital for companies to attract new talent and retain valuable employees. This more thoughtful attention to the workplace environment has proven to have a direct impact on the companies’ bottom line.”

Barry Rowan – A Search for Meaning in our Work

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Andrew Zezas interviews Barry Rowan, CFO of Vonage Corporation, about
“A Search for Meaning in our Work.”

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Copyright 2017