There is an overlap between the issues faced by operating partners working with portfolio companies and CFOs at private equity firms.
Indeed, the roles are increasingly merging. Can anyone name a PE fund CFO that has not loaned their expertise to portfolio companies on capital structures or management incentive programs? At sister publication Private Equity International’s Operating Partners Forum: Europe 2019, there were some clear lessons that private equity firm CFOs could learn from.
Pricing strategy, for example, provides an opportunity for value creation that is often overlooked but has the potential to deliver the most return on investment, said Mark Billige, managing partner at consulting firm Simon-Kucher & Partners. It gets overlooked, Billige suggested, because either management teams see it as too technical or complicated, it seems somehow anti-customer or it is simply too much of an expensive exercise.
One could argue private equity firms are already savvy price strategists. PE firms have a relatively small number of clients to cater to, making it easy to blend fee breaks, co-investment rights and separate account terms to cater to individual investors and get capital raised. When retail capital becomes a more important component of the investor base – and the number of individual clients goes up – perhaps pricing strategy will come to the fore.
But it was the area of robotic process automation – and the almost unfathomable effect it is going to have on operational efficiency – that should be most of interest to CFOs. Keynote speaker Anubhav Saxena from RPA provider Automation Anywhere talked through an example of how a knowledge worker gets replaced by a software robot, something we explored in depth in June’s Private Funds CFO.
At a conference for operators, he chose a finance function role as an example. The type of bread-and-butter work that requires taking data from one format and transferring it to another (say, from an invoice PDF to a spreadsheet) is exactly the sort of thing a robot can be taught to do, he noted.
As Carlyle Group operating executive Georgette Kiser, who was the mega-firm’s chief information officer, said, large private equity firms are making the same use of emerging technology in their own operations as they are encouraging in their portfolio companies.