How Bigham Consulting Helped a CFO Boost Success in Mergers & Acquisitions

Published on August 21, 2024

In today’s fast-paced business landscape, Mergers & Acquisitions (M&A) are pivotal events that can redefine a company’s future. However, the complexity and risk associated with these transactions demand specialized financial expertise. This is where a CFO Consultant plays an indispensable role, providing the strategic guidance necessary to prepare a company for the intricacies of an M&A deal.

The Challenge: Boosting Valuation in a Critical M&A

Our client, the CFO of a recently delisted technology company, faced a daunting challenge. Despite being fundamentally profitable, the company was struggling with liquidity issues, making it an attractive target for a takeover. In the world of M&A, liquidity problems can significantly impact a company’s valuation, putting it at risk of being undervalued by potential acquirers.

During the pre-acquisition phase, acquirers conduct preliminary company valuations using various methods, including discounted cash flow models. These models are highly sensitive to cash flow management, where present cash is valued more than future cash due to the time value of money. Therefore, enhancing cash flow becomes crucial in boosting a company’s valuation before entering deal negotiations.

Strategic Actions: Enhancing Cash Flows to Drive Valuation

Bigham Consulting was engaged to assist the CFO in increasing the company’s cash flow and, consequently, its valuation. Our role involved leading the Group Treasury function on an interim basis, with a clear goal: to enhance liquidity across the group and drive up the transaction price before any deal was finalized.

Here’s how we approached this critical task:

1. Debt Collection Initiative:

We collaborated closely with the senior sales team to implement a robust debt collection outreach program. By recovering long-overdue payments, we injected immediate cash into the company, stabilizing its financial position and reinforcing customer confidence in its long-term viability.

2. Asset Financing and Optimization:

We conducted a thorough review of the company’s assets and expenditures, identifying opportunities to securitize non-essential assets and capitalize expenditures related to uncapitalized Intellectual Property (IP). By refinancing and renegotiating terms on existing overdrafts and loans, we were able to free up significant working capital, which was then used to service critical suppliers and further stabilize the company’s financial health.

3. Group Currency Forecasting:

Prior to our involvement, the company’s Group Financial Controllers conducted telephone meetings to report cash flow forecasts from 10 countries, dealing with 20 different currencies. This process was not only onerous but also time-consuming, as converting these forecasts into local UK currency meant that by the time the CFO received the data, it was often outdated and of little value.

We transformed this process by developing a comprehensive group currency forecasting model that centralized all cash flow data. Instead of relying on manual conversions, we implemented a system where all reports were entered in real-time directly into the new model. This enabled the CFO to view a consolidated Group Cash Flow forecast in UK currency—or any other currency—instantaneously.

This real-time, automated approach allowed the CFO to manage liquidity with greater accuracy, mitigate foreign exchange risks effectively, and provide financial stakeholders with up-to-date, reliable financial projections, thereby significantly enhancing the decision-making process and maintaining stakeholder confidence.

4. Supplier Negotiations:

We engaged in strategic negotiations with key suppliers to restructure payment terms. By presenting a solid plan for the company’s financial recovery, we secured their cooperation, ensuring continuity in critical operations. Throughout this process, we worked closely with the Chief Legal Officer to manage the legal risks associated with creditor claims, thereby protecting the company from potential liquidation threats.

5. Refined Cash Flow Modelling:

We significantly enhanced the company’s cash flow models, enabling the CFO to present a more stable and positive financial outlook to potential buyers. By reforecasting cash flows three times daily, we provided the CFO with the tools necessary to make informed decisions and take immediate action to manage risks effectively.

5. Refined Cash Flow Modelling:

Before our involvement, the company’s credit control function was slow and ineffective, leading to significant delays in collecting overdue debts. This inefficiency not only hampered cash flow but also meant that the sales ledger was not integrated into the cash flow forecasting process. Similarly, the Creditors ledger and Payroll were also not adequately incorporated, leaving the company with an incomplete and inaccurate picture of its financial position.

We addressed these issues by developing an advanced cash flow model that directly pulled data from the client’s ledger system. By applying realistic business rules, the model accurately reflected cash receipts and payments, providing a more reliable forecast. This allowed the CFO to focus on accounts that were likely to be problematic, ensuring that potential issues could be addressed proactively.

Furthermore, we recognized that the traditional approach of simply sending a credit controller after slow-paying clients was ineffective, especially when payment delays were due to unresolved service issues. Instead, we involved the sales leadership in reaching out to these clients. This approach was critical in uncovering the underlying reasons for their dissatisfaction and negotiating part payments until the issues could be fully resolved. By doing so, we avoided the pitfalls of antagonizing clients, which often leads to worse outcomes.

It is essential to understand that pursuing aggressive collection tactics—such as sending collection letters, engaging debt collection agencies, or initiating litigation—without first addressing the client’s concerns can be counterproductive. Our refined approach ensured that the sales and credit control functions were closely aligned, with escalations to the sales leadership when necessary. This collaborative strategy not only improved cash collections but also helped maintain strong client relationships, ultimately contributing to a more positive financial outlook.

By reforecasting cash flows three times daily, the model provided the CFO with the tools necessary to make informed decisions in near real-time, enabling immediate action to manage risks effectively. This proactive approach was crucial in presenting a stable and positive financial outlook to potential buyers, which significantly improved the company’s position during negotiations.

The Outcome: Delivering Results Through Strategic Financial Leadership

The outcome of this engagement was a testament to the power of strategic financial leadership. At the time of our involvement, the company had been valued at a nominal £1, following its delisting from the UK stock market. However, through the combined efforts of our team and the company’s leadership, we successfully enhanced cash flow, improved the company’s financial stability, and ultimately increased its valuation.

The final transaction was completed at approximately £50 million, a remarkable turnaround for a company that had been facing significant financial challenges. Not only did this outcome secure the company’s future under new ownership, but it also preserved numerous jobs that were at risk.

Why Consider a CFO Consultant?

A CFO Consultant brings deep financial expertise and strategic insight that can be a game-changer for companies facing significant challenges or preparing for major transactions. From managing liquidity to optimizing cash flow and preparing a company for sale, a CFO Consultant provides the financial leadership necessary to navigate the complexities of pre-deal preparation and deliver successful outcomes.

If your company is preparing for an M&A transaction or needs financial expertise to overcome business challenges, contact Bigham Consulting today. Our experienced team is ready to guide you through every step of the process, delivering results that exceed expectations.