M&A from a CFO’s perspective: Interview with Avecto’s Rachel Cunliffe
The Chief Financial Officer (CFO) is often the unsung hero of an M&A process. From preparing three-year financial forecasts to answering detailed questions on vendor legal agreements, all while continuing the day job; the CFO plays a pivotal role. It is an area we actively encourage entrepreneurs and investors to bolster throughout their growth phase, especially as they begin to consider either an investment or an exit.
We spoke to Rachel Cunliffe, CFO at Avecto – a cybersecurity software company focussed on privilege escalation and delegation management – to discuss her experiences from the company’s two separate transactions: the first a US$49 million growth equity fundraise by JMI Equity; the second the company’s strategic exit in July 2018 to US-based Bomgar (a Francisco Partners-backed company) to create a leading player in the privilege access management space. Results International was the exclusive financial advisor to Avecto in both transactions and assisted Rachel and her team throughout each process.
You were involved with both Avecto’s growth equity fundraise and the eventual strategic exit, how did the two processes differ?
RC: The fundraise was a very different process to our exit. We decided to raise funds to boost investment and revenue growth. We spoke to lots of different private equity firms during that 6-9 month process, so we had the time to prepare and choose the right partner. Our exit was a reaction to serious inbound interest and was completed within two months, so there was significantly more time pressure.
The information requests and financial analysis for the acquisition were more indepth. We had our template of due diligence requests from the JMI Equity investment, but the breadth and depth of requests and specific analysis during the exit process was greater.
The future planning also differed. JMI was focussed on growth and the investment plan going forward: how do we obtain that top-level growth; where will we expand; will growth be driven by markets or product road maps? While there was plenty of attention in these areas, of equal importance was the discussion around how we would make the combined businesses work, how the product and sales strategies would gel together and what our go-to-market strategy would be from a messaging and product perspective.
What would you point to as the key deal ‘pain points’ and how did you go about addressing each?
RC: There were two key areas: managing the day job alongside the process and prioritisation of the numerous work streams.
In terms of managing the day job, I would advise getting outside help to come in and support, giving space for the day-to-day finance team to keep on top of their operational responsibilities. I had to lean on the finance leaders, specifically my financial controller, quite heavily. The way we fixed it was by appointing corporate finance advisors, who were a great help, supporting us in cutting, analysing and stress-testing financial information.
With regards to prioritisation, constant communication between me and my advisors worked well: everything is urgent and comes in at once, you must maintain control of the task list and target the highest priority items. I found it very useful to have a tracker of tasks and responsibilities and assigning them to each person with deadlines, which helped us keep on track.
How did you see a financial investor (JMI Equity) impact the business in your role as CFO?
RC: JMI were fantastic in terms of advising us on new initiatives, processes and best practice. Having invested in other software companies, JMI were able to give us insight into relevant benchmarks, growth metrics and KPIs. They also advised us on our three year plan – our growth objectives, profit margins and cash flow. They were incredibly supportive and a second opinion when we were talking about our product road map and territory expansions. They had access to valuable resources – such as commission plans and the best internal systems to use – and a wealth of contacts and information we could leverage. They also held round table events where every CFO from their portfolio would attend and we could share ideas; that was great.
What advice would you give to a CFO who is about to undergo a fundraising or M&A process?
RC: Prepare information in advance, regardless of whether you have been through a funding round before. From the funding round, where we were preparing a lot of information on KPIs and trends to manage performance, we kept those disciplines in place and continued to track the data, automating our systems to do so. The information became part of our monthly operations meetings and board meetings, and our scorecards evolved over time. Most of this information was required as part of the acquisition’s due diligence, which saved a lot of time.
You will also need to prepare your leadership team for the process; inform them what is expected of the company, of the finance team and of them. Prior to the M&A process I was meeting with Mark and Paul (co-CEOs of Avecto) weekly around the preparation, then daily during the process due to the constant flow of information requests.
Finally, get support internally and externally: good external advisors who can help you drive the process, pull together a list of actions and plan the process fully – who is doing what and when? – which will help to prioritise. You need to choose people to support you that understand the systems, the processes and the sector. Getting a detailed due diligence checklist from your corporate finance advisor ahead of time will be invaluable to your preparation. And, if you feel you need it, get outside temporary help to support the internal day-to-day running of the organisation.
How do you feel you best utilised your corporate finance advisor during the process?
RC: We worked with Results International for several years, first on the funding round, then the acquisition. We spent a lot of time together during the funding round which really helped
Results International understand Avecto as a business, as well as our financial planning and reporting. This meant they were able to look at our data, challenge it and help us to present it in a more user-friendly way, which made the exit so much easier. From a CFO’s point of view, a corporate finance advisor needs to be an extension of the business: to provide you with excellent support they must know the sector you operate in, and the business inside out, and be prepared to get involved with ‘doing’ as well as ‘advising’ – Results International offered that every time.
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