Services for Private Equity Firms

Has it ever happened that, after an acquisition, some elements come up you hadn’t detected during the “due diligence”? With dire financial consequences…
Elements are most often not only financial but operational and strategic.

1. SOME EXAMPLES

• Lack of investments in maintenance disrupt production after some time…
• The successful entrepreneur managed his sales team “on sight” with success in a local market, but as soon as the international expansion got on, with your money, chaos erupted, even locally: there was lack of structure, experience and risk management…-
• A new technology or product in the market puts a big question mark on future growth of the company you just invested in. An insider would maybe have known..
• The stock was evaluated at cost, not at market value…
• Warranty management: what is the risk of warranties given that are part of the business proposal of the company?
• The software products of the company have hundred of non-documented add-ons and versions, and the next generation developments are light-years off schedule…

To help you avoid this, you can ask consulting firms to help you in the due diligence.
But they are consultants, not managers. And their cost is also quite decent…
Do they know the “tricks of the trade” as managers? With a helicopter view you never look “under the kilt”.
Arrowstone, with its extensive network of seasoned managers, offers you the opportunity to use the inside knowledge of the sector by providing you experienced managers with deep experience in the business of the target company.
During the “due diligence” and negotiation phase.
For 2 days, 10 days or whatever, you choose.

2. HOW IT WORKS

From “Challenging walkthrough” to “thorough Operational audit” by an experienced manager with:

• Experience of the sector,
• A CEO or COO profile,
• Familiar with size of company you target.

He can help:

• Identify and analyze the sector-specific attention points,
• Validate the future business forecasts and strategic choices,
• Give experienced analysis of operations, organization, processes, state of tools, sales performances, …
• Attract attention on specific pitfalls of the sector (environmental hazards, social malpractices…)

Arrowstone proposes also Assessments of the Management Team, based on state-of-the-art methods who assess the actual management level and the potential of the managers.

Before you decide, Arrowstone gives you the insight to understand your opportunities and your risk. At the most transparent and reasonable price.

Our objective: that you identify Arrowstone as the best partner for your management issues!

You know the discounted cash flow valuation. Have you evaluated the financial cost of losing 6 to 12 month growth in the companies you acquire? If you are 10 or 20% below objectives the first year, you can lose between 20 and 50% of your exit price.

Sounds familiar?

USUAL FACTS :

When a VC acquires a company, it happens most often than not that both parties (buyer and seller) experience a “post acquisition hangover”. Even if the seller remains a shareholder.

WHAT DOES THIS MEAN?

• A lot of physical, intellectual and emotional effort is involved in a deal. It is absolutely normal to feast the deal and then go to earn a well-earned sleep for some hours…
• The day after, energy is often low, and in the first weeks, the VC starts to implement reporting channels and reporting tools. Not willing to destabilize the business, the first period is quite “hands-off”.
• The seller and eventually his management team, who are exhausted by the process, have somewhat lost direct contact from operations during the deal and must at the same time adjust to their new position and role.
• After some weeks/months, the VC sees the results follow a lower curve than the expected forecast. Meetings, tension follow. The first difficult time in a couple is a confidence-test. So no harsh decisions on first feelings are made, especially as the VC managers are not always sure of the origin of the problem.
• Time is lost, between 3 to 12 months on average, before dialogue and actions are aligned between VC and management.
• On a deal where the average exit is after 5 years, and where value must increase exponentially with the years, one year lost can signify 50% lost on final value.

THIS IS AVOIDABLE

OBJECTIVES OF THE CURE

• Avoid the post acquisition dip
• Inject positive energy in the partners and between the partners: create an ALLIANCE.
• Improve communication between the new investor and the management team.
• Prove the added value of the investors, their professional approach of a real partnership
• Improve operations.
• Help detect the quality of the management team, and inform the VC on possible / necessary improvements or changes.
• Set up effective and efficient reporting, useful for the management team and compliant with the demands of the VC.
• Secure the investment.

HOW IT WORKS

Services that Arrowstone can provide

1 – Executive Search or Interim Management:

From the start, it is clear the General Manager wants to quit at short/medium notice, or must be replaced. Or major top management & business development management functions must be filled in.

Arrowstone will prove a competitive business partner to help find qualified and over-performing managers, interim or permanent.

This manager will have an in-depth knowledge of the sector; will be an experienced general manager with real familiarity with SME or family-owned businesses, and also experience of the expectations and working of private equity. A real hands-on man with a strong strategic ability.

Arrowstone will provide effective “shadow management” and technical support to optimize success

2 – Coaching of the post-acquisition transition phase:

Top management is efficient and motivated to continue the project. This is an assumption that must prove right in the facts.

The acquisition is also often the result of the feeling of the seller having reached some of his limits, in management, sales, finance or other areas. But a feeling is not always conscious, and consciousness is not always acceptance…

Arrowstone therefore proposes to put in place a “coach” from day one.

The idea is to have an experienced coach with manager experience acting as “challenging partner” and “liaison officer”.

His involvement can be full-time or part-time.

3 -Providing quality Board Members :

Building a quality Board, Statutory or Advisory, is key to orient and support the Executive Management. Arrowstone has a broad expertise in providing the portfolio company with Non Executive Board Members with strong market experience, strategic insight and international contacts.

4 – Assesment of the Management Team

Arrowstone proposes also Assessments of the Management Team, based on state-of-the-art methods who assess the actual management level, the potential of the managers and the team dynamics.

THINK OUT-OF-THE BOX.

All the potential buyers in the sector or in the investment sector will be identified during the “management phase”.

But it could be that the company has an exceptional value for “out of scope” actors.

Arrowstone can help the VC assemble an “exit advisory board” helping you to brainstorm on and define alternative exit opportunities. Their contacts will help open doors and create trust with potential buyers.