Financial matters: Why CFO support is critical in carve-out situations

There are many vital business functions that face the prospect of disentanglement and ultimate separation during the process of a carve-out – for example, IT, Legal, Sales, and perhaps most importantly, Finance.

Our recent engagement working with KWC Group and Equistone brought this into sharp focus. As part of a much larger parent company, the finance entity to be carved out into the NewCo was not operationally equipped to function as a standalone entity from Day 1 – a scenario not uncommon in transactions of this kind.

In our work with the client to transition the CFO and finance function overall for its new operating environment, we followed three key principles in our planning and implementation to ensure that tight financial control could be accelerated to jump-start future transformation efforts:

Reimagining reporting: Implementing a new approach to business reporting logic was needed to align with ownership expectations – a frequent concern for new Private Equity ownership team is the lack of robust financial and operational reporting in portcos, which can drive timely, detailed business reviews and rolling performance updates. In the current climate, greater fiscal transparency and a close eye on cash and working capital is also more important than ever.
Using the finance function as a driving force for value creation: Historical business unit finance reporting practices within a ParentCo generally carry a reduced emphasis on critical drivers of value creation. By their organisational nature, they present a localised snapshot of period performance and budgeting requirements. Post-carve-out, however, standalone businesses are immediately in a race to make investment theses a reality, and increasing the sophistication and granularity of performance information can catalyse the business case for value creation initiatives and deliver highly accurate updates on progress towards the company’s holistic goals for individual functions and legal entities.
Setting up for sustainable success: While the first few months of any new company’s life will be loaded with time-pressured targets, a long-term, sustainable operating model must not be forgotten. In establishing, on-boarding, and guiding a Project Management Office within finance, we were able to lay the foundations for a new way of working and lasting, transformative change. In this particular engagement, our work supported in optimize the financing structure for the company, identifiying and implementing performance improvement measures with c.CHF15m EBITDA impact, plus additional cash impact in 2022.