CFO 4.0 - The Future of Finance

236. Mastering M&A | M&A Without Mayhem: Structure, Stakeholders & Surprises with Andy Mellor

• Hannah Munro • Episode 236

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In this episode of CFO 4.0, host Hannah Munro speaks with Andy Mellor, Fractional CFO at Summit 17 Ltd, about navigating M&A, preparing for financial events, and leading finance teams through high-growth environments.

Key topics covered:

  • Andy’s career journey and transition into fractional CFO work
  • Structuring finance teams to support rapid, acquisition-led growth
  • Managing M&A deals end-to-end, including due diligence and integration
  • Communicating effectively with sellers, stakeholders, banks, and PE firms
  • Building robust financial models and scenarios for funding strategies
  • Preparing businesses to be “event ready” with data, tools, and discipline

Links mentioned

Speaker 1:

Welcome to CFO 4.0, the future of finance. The CFO role is changing rapidly, moving from cost controller to strategic visionary, and with every change comes opportunity. We are here to help you take advantage of this transition to win at work, drive your career forwards and lead with confidence. To win at work, drive your career forwards and lead with confidence. Join Hannah Munro, managing Director of ITAS, a financial transformation consultancy, as she interviews key experts to give you real-world advice and guidance on how to transform your processes, people and data. Welcome to CFO 4.0, the future of finance.

Speaker 2:

Hello everybody and welcome to this episode of CFO 4.0. My name is Hannah Munro and with me today is Andy Miller, who is a fractional CFO at Summit 17 Limited. Welcome, andy, so great to have you on the show.

Speaker 3:

Thank you for having me.

Speaker 2:

So tell us a little bit about yourself. What was your journey to CFO you?

Speaker 3:

for having me. So tell us a little bit about yourself. What was your journey to CFO? So yeah, I started, I finished my A-levels and then went and got a job and worked and qualified at the same time so I didn't go to uni or anything like that so did my AAT qualification, did my SEMA qualification.

Speaker 3:

Whilst both whilst working and then qualified up through I worked in the co-op for quite a long time. So they were really good to us and kind of funded all my qualifications and so I progressed through that business for about 12 years, finished there working in M&A in the pharmacy business and then kind of did, moved across into a smaller pharmacy business where I was a finance director and then worked for a total fitness business so a chain of gyms for a while and did a private equity, backed mbo there and then became cfo of a chain of nurseries for a while. So another growing business, um, doubled the size of that business in two years um. And then I've done a kind of couple of different kind of smaller smes, privately owned um cfo roles and then four years ago about four years ago became fractional cfo. So yeah, effectively offering those same services and kind of the experience to smaller businesses that are just on a fractional basis.

Speaker 2:

And you know M&A has come up a lot in that history, so let's focus in on that. So how did you approach, obviously within just take the nursery business example you know what did you do to set your team and the business up for success in that kind of m&a strategy?

Speaker 3:

and I think there's a I mean there's obviously there's the structure. I find this a lot. There's a structure of the finance team for something that's scaling like that is is quite challenging because, because you're always trying, you're always chasing the growth of the business and you know that it's coming, but equally you're trying to balance the scale of the team, that you've not got too many people, you're not spending too much money on the team, but equally you've got the headroom to be able to grow into that. So, definitely, piece around the structure of the finance team and making sure you've got enough, a lot of transactional resource and integration resource. And then I think there's a piece around the wider business as well about having kind of good integration plans and communication. I think we'll probably keep coming back to the communication thing through the whole of the M&A process is massive. So being able to kind of have a platform for communicating within the business about what's going on, what's coming up, particularly if you are doing a lot of M&A.

Speaker 2:

So tell us a bit more about the. I guess how the business approached M&A. Was it that you was every transaction really similar and you were just pulling them in, or did you do a huge amount? Did you have different types of M&A that you were doing in that particular role?

Speaker 3:

Yeah, so in a nursery business they were relatively similar businesses. We were probably. We had sort of 30 nurseries at the time. We grew to 60 over a couple of years. So we were buying kind of between chain chains, sometimes chains up to five to eight nurseries, sometimes individual nurseries, so they were quite similar businesses. Um, they would generally be owned by people that had owned those businesses for a while, had probably grown up through child care, so they weren't necessarily seasoned business people. They'd done very well, they'd kind of built a business and probably built a chain of nurseries and they'd they got it um, but they weren't necessarily educated in the um corporate finance, you may call it in the in the kind of the, the acquisition process and that kind of stuff. So there's a lot of a lot in the, in the kind of the, the acquisition process and that kind of stuff. So there's a lot of a lot of education in in kind of bringing those businesses in and and how did you you know when you came in?

Speaker 2:

were they already on that journey? Was it something that they brought you in specifically to do? What? What was the scenario that you walked into?

Speaker 3:

Yeah, so they'd already been on quite a growth journey. They already had the private equity backing in place. So they'd been on a growth journey to that point and I think they'd reached a point where they needed more resource to be able to continue that journey at pace. So, yeah, I was effectively taking the deals the deals had probably been negotiated by the BD team and the CEO and then effectively taking them from that point through to completion, through legals and financial diligence and all those processes and getting board sign-off and all that kind of stuff.

Speaker 2:

So, yeah, it was more to kind of accelerate what had already been happening and to do more of more of the same quicker and and though you mentioned obviously they would do the provisional sort of assessments, um, I guess the first round of we want, you know, strategic decision making around which um, which um nurseries they want to acquire. So what did that process look like, you know? Because it sounds like it was a bit of a production line going on there in terms of the volume that you're dealing with. So is is that right? Have I got the, the, the view of that correct?

Speaker 3:

so, yeah, I guess I guess you could say there was a bit of a pipeline.

Speaker 3:

As with all these things there's a bit of a funnel.

Speaker 3:

So there was a lot more leads going into the top of the funnel that we were then valuing and we got a bit of a slick process, fairly quick, to be able to assess a business quite quickly, work out a ballpark value.

Speaker 3:

Was it of interest? Were we going to take it to the next stage, get them an offer on the table to then check that they were interested and then, once we had them a heads of terms or an offer on the table, we could then progress. That I think we were quite aware of the capacity of the business to grow at that pace, had to be kind of careful. It's a careful balance to keep that growth going but also have the not just the finance capacity but the operational capacity to deliver the acquisition but then also, probably more importantly, integrate that acquisition into the existing business so as not to damage it either business and able to kind of bring that in and add that value to the overall business. Because the whole game was you buy the business and you make an arbitrage on the, on the value that you're multiplying your EBITDA by at the end.

Speaker 2:

so, um, so, yeah, a bit of a production line, um, but a balanced one, let's say and in terms of what was, what did you see as your role as CFO, in terms of supporting that process?

Speaker 3:

I did spend a lot of my time on the M&A side of the business. I was very lucky I had a really capable financial controller who took care of the day-to-day business. I was still very much involved but I knew I didn't have to worry that much about it. So I think I spent a lot of my time almost project managing the M&A from deal acceptance through the board approval process, through the financial diligence process, liaising with the lawyers and the legals, and project managing that through dealing with the sellers and the legals, and project managing that through dealing with the sellers as well and any brokers that were involved in the middle. So yeah, very much a lot of stakeholder management, a lot of project management and, as we keep coming back to, a lot of communicating about what was going on and when and managing that through.

Speaker 2:

And what was your biggest takeaways from going through that process and that volume of acquisitions? What did you learn about the process and about how you should set it up?

Speaker 3:

I think having a very not rigid but well-defined process and knowing what needs to happen when and making that very clear with everybody right at the outset as to this is the plan, this is when we plan to complete, these are all the things that we need to make happen before that point, and also accepting that not everybody in that process is going to be as educated in the way things work, and particularly the businesses that we were buying were relatively kind of I call them mom and pop type businesses that had kind of grown up and ended up with this business that was worth a few million pounds in the end but not necessarily ever come across the concept of financial due diligence and you say that to somebody and they go oh yeah, it's fine, that's okay, we're happy to answer questions on our accounts, but a real financial due diligence process of really digging into the numbers is a lot more intense. So it was kind of about managing their expectations up front but that will be quite difficult and quite awkward and be ready for it so that when you're in that process it's not a surprise. And then being in some cases sometimes in bigger M&A deals, it's very rare that the buyer and the seller talk to each other direct. I guess you've got corporate finance advisors and everybody in the middle, but in these cases we were.

Speaker 3:

We were dealing direct and I was kind of an open line of communication say, just come talk to me if things get difficult, we're here to. We're here to make the deal happen and and help. And if we can help walk you through what, as an example, we've got a diligence provider that's asking lots of very difficult questions. I can probably translate that for you into what they're actually looking for or what documents you've got, that you don't call them the same thing that they call them um. So yeah, I think that the takeaway from that I suppose would be that not everybody is as educated in that process as possible and also having a fairly regimented process that you can track, measure, communicate and therefore you know whether you're on track or off track all the way through that process. And even if that's kind of you know, a 12-week process, you know at week four, five, six that you're whether you're on track or not.

Speaker 2:

So for those of you that don't know what we do here at ITAS, so we are a financial transformation consultancy that specialises in sage technologies. Whether that is looking at a new solution, evaluating your current solution or just helping you to get the most out of your current setup, we can help.

Speaker 4:

But rather than me tell you all the reasons that you should consider working with us as a sage partner or a transformation consultancy partner, I'm gonna let our customers do the talking for us itas were there from the, from the sort of get go helping us, you know, talking through what the process was going to involve, setting expectations, you know, making it clear that how much work we were going to have to put in to make sure that the project was a success at the end.

Speaker 4:

And then talking us through all our different options, looking through our current processes, making us re-evaluate what was important, which elements we wanted to move across to the new system, how we wanted to configure our new system, and also kind of making us sit back and really think about what is the success of this project?

Speaker 4:

When we get to the other end, when we finish the implementation and we're in the system, what's success going to look like?

Speaker 4:

And actually putting that question back to us and really making us sit down and think about what is it that we are looking to gain from this whole process was really useful internally, making us really think about the key objectives and which areas to maybe prioritise over others.

Speaker 4:

It was also really helpful sitting down and thinking about it rather than one big, huge project actually splitting it down into different phases, sort of smaller, bite-sized chunks, which made it seem a little bit more achievable within the time and then thankfully, itas have been super flexible with us during this process because it all it happened to coincide our implementation with our first ever financial audit, which just took up huge amounts of our time that we didn't expect. So we did have to um slightly push back some of our go live dates and and thankfully itas were accommodating and actually helped us navigate through through that process and like to say that thankfully we're out the other side of our first days of go live and, uh yeah, loving the move to impact and you mentioned obviously the challenges of dealing with maybe not uneducated, but non-financially educated buyers that haven't been through this process before.

Speaker 2:

So how did you again prepare them yourself in terms of helping them understand what's required like? How did you approach that?

Speaker 3:

um, building a relationship with them was the, the key bit, um, and I would generally go and visit them um right at the outset. So they'd probably had the interaction with with the owners of the business first the owner of our business first and they'd had that interaction and it was a family-run business even though it was private equity rights it was family-run. So they'd always got a nice feel for the business and my job was then to come in as the finance person who was managing the legals but keep that feel for the family-wel, that feel for the, the family welcoming feeling business. Because I think one of the one of the things, particularly in that industry, was these people had like staff that were like family. They had children that were being looked after, so they wanted to make sure that their business was going to a good home. They didn't want it to feel like it was going into a, into the hands of a private equity business kind of thing. So, meeting them, making them realize that we're human beings, and they could kind of continue to talk to us through the process and then kind of walking them through that process that we knew was going to happen, around financial diligence, around legal due diligence, around the legal process around.

Speaker 3:

You know, and telling, being very honest, that it's going to get quite awkward sometimes. You know the lawyers are probably going to fall out at some point and come back to you and ask you for a very difficult decision on something, and that's going to be difficult and you're going to feel like it's the worst thing in the world, and it's not. It's just what always happens, like it's the worst thing in the world and it's not. It's just what always happens. And yeah, just, I think, the honesty piece, so that when that thing does happen they don't feel too emotional about it, that it's just part of the process.

Speaker 3:

It's just people doing their jobs. You're paying your lawyer, we're paying our lawyer. They're doing their job to try and negotiate the best for both sides, but accepting that at some point either one of us can go, can you just back down, or can you push that, that point harder, or whatever that might be. So, um, yeah, I think it's the. It was the personal side of things, particularly in that in that type of mna scenario, it was, um, yeah, just communicating well and giving that feeling of, of working with human beings and what was your most challenging acquisition and why and what did you learn from it?

Speaker 2:

there you go, three questions in one good one, um, good one.

Speaker 3:

I think the most challenging ones are the ones where performance isn't as either isn't as they said it would be through a due diligence process, or isn't continuing as well as we hoped it would be up until completion, continuing as well as we hoped it would be up until completion um, and we had. We had one where the, the occupancy, which was the measure of performance in those in those businesses, was not where we hoped it would be and, effectively, that their growth, their new children coming into the nursery, wasn't as high, as high as we predicted it would be. And that's where you do need it's that open communication. As long as you've had a conversation at the beginning about when we start to look at your numbers, we'll be expecting to see this and that's what the offer is based on, as long as you've got that basis, because then what happened was we had to go back and go. Well, we can see your numbers are not where we thought they would be. So the offer was based and we kind of tried to make that as clear as possible in the offer that the offer is based on expected levels of occupancy and revenue and turnover of this basis. So then we have to go back and have a quite difficult conversation of it's not where you said it would be. So therefore we have to chip the price, unfortunately, and those are.

Speaker 3:

You know, that's when it does get difficult. It gets emotional. Um, so, yeah, that, and don't you question the learning that comes out of that. You know I can, I can articulate it quite well now, but at the time it's really really difficult. And you learn for the next deal I need.

Speaker 3:

You know I can articulate it quite well now, but at the time it's just really really difficult. And you learn for the next deal I need to. You know that one probably didn't have enough time openness around the, the way the offer was structured. So the next time we tell people right that the offer is structured around this and it's structured around these numbers, and if those numbers aren't the numbers, then then that that number may change. It. May, it will only come down, won't it? But, um, yeah, that that number will be changing. So, um, yeah, it's it difficult ones. And and again that comes back to if you've, if you've built that relationship with them that you can have that openness and honesty, then you can, you can have that difficult conversation without it getting too emotional, but as soon as, as soon as pounds and pence are involved, that's when it does get more difficult yeah so.

Speaker 2:

So I guess what we're saying there is being super upfront about any assumptions you're making that are driving the value and what what might change the deal structure in advance, so that there's no surprises. I guess it also enables the, the seller, to go actually, those, these things aren't there, and so can we have that conversation up front before we go any further and before anybody wastes their time yeah, exactly because you know we can.

Speaker 3:

You can honestly say to somebody look at that's, if you can see something coming down the line. And the example in that business was if you've, if you've got lots of children who are four and five that are about to leave, and your occupancy takes a huge dive, and that's generally generally what happened Some of them could take a big dive and we'd look at that through the offer process as much as we could. You can say to them look, if that's going to happen, just tell us, because we'll structure you an offer around what we think will happen at that point.

Speaker 2:

But if that happens while we're in process, that's going to be a change to price or a deal breaker change to price and or a deal breaker, and when you, you know, when you look and think about you know sort of due diligence. What was some? Was there any learnings around things that you found maybe after purchase that you would now look for in that due diligence process?

Speaker 3:

yeah, I think the most difficult thing in that in that scenario was definitions. It was what is what is a session, as an example? So children go to nurseries for half day sessions and you know what is the what's, their definition of occupancy what's? And making sure you're comparing apples with apples, um, that we call something three and a half hours, they make four and a half hours or you know. So making sure that those things matched.

Speaker 3:

And we had various system issues.

Speaker 3:

Um, where you know systems were either kept up to date or not kept up to date and the diligence the due diligence providers for us had, it was almost an incomplete records process of trying to piece together kind of what does, what are the different systems saying and what's missing and what do I need to add to that?

Speaker 3:

Um, and I think I mean nursery specifically had very complicated funding structures because, as most people will know now, 30 hours free child care and all that kind of stuff, you were getting paid for one uh child in multiple different ways. You're getting paid by parents, you're getting paid by tax-free childcare and that kind of stuff. So that was very complicated and if they didn't have their systems and processes really well nailed down, that was very difficult to unpick through a financial diligence process. We were quite good, we were quite lucky. We had a good provider for a financial due diligence who we just used for every single one. So they just understood it and they knew how to, how to get beneath that and how to reconcile things if they needed to and obviously you mentioned that you were a private equity-backed organization.

Speaker 2:

so that's a a bit of a contrast, isn't it? Mom-and-pop style businesses coming into a private equity-backed high-growth environment, you know, I guess first question is is how did you manage that cultural piece when bringing and onboarding new acquisitions into that without maybe losing some of the qualities that made them successful in the first place?

Speaker 3:

some of the qualities that made them successful in the first place. Yeah, I think it probably wasn't the typical private equity-backed business that people envisage a private equity-backed business to be, if that makes sense. The backers were great. They were a really good business. They were very supportive. Really good um, really good business. They were very supportive and the, the operational business and the um, the teams that were involved and interacting with the nurseries, were very.

Speaker 3:

There was an airlock, let's call it, or whatever. There was a bit of shielding from the corporate kind of side of being a private equity-backed business. So, yeah, I don't think there was. Obviously there was a drive for performance and there was a need to get the businesses integrated as quickly as possible. But I think that was just inherent in the business, wasn't necessarily a private equity driven thing, and while we were growing well and scaling and delivering on these acquisitions, there wasn't a lot of pressure from the private equity firm to do anything different. So I think that's probably what you see in private equity-backed businesses is that things aren't going well. There's a lot of involvement and influence. If things are going well, they'll leave you to it and kind of just keep doing more of the same. So I think we were probably more in that camp and what was their expectations of you as cfo?

Speaker 2:

given your any strategy, what was the private equity organization looking for from you?

Speaker 3:

I think, um, confidence was the biggest thing that they I find this with any private equity business and what they would want from their CFO but that confidence in are we going to hit the plan? Are the numbers right? What's the future looking like? So yeah, just you know we would talk weekly with our representative and just give them updates and you know it's a bit of a given don't give them any surprises. So keep them up to date with anything that's going well, anything that's not going well. Like I said, they were very supportive from a financial point of view and from a management point of view. So, but yeah, I think their expectation was keep things running on track, keep things growing and don't give them any surprises in the numbers, particularly. So that was it.

Speaker 2:

And you mentioned obviously private equity is normally good if you're on track and things are going well. Was there any times during your time in that role where things weren't quite going to plan, and how did you handle that with the private equity organisation?

Speaker 3:

Yeah, I think we were probably either lucky or we were running the business really well that we didn't have a lot of very challenging conversations. They were probably more around the challenging conversations were probably more around funding and exit preparation. So the plan was always to either sell, refinance whatever that might be have an event at some point. So I think that the challenges were around the timing of um, the growth and what that tipping point was for when it reached the scale to be able to then sell or or move to the next stage or refinance. So yeah, I think a lot of the challenging conversations were around um debt capacity and performance of the of the businesses you were buying, underlying performance of the business. There wasn't too many difficult conversations around around underlying performance, um, but more around kind of the pace that we would get to that, that scale and that tipping point.

Speaker 2:

And were they in, you know, assessing the acquisitions, as you know, as part of this process? Were they involved at all or did they very much leave you guys to it?

Speaker 3:

No, no, they were very. Yeah, they were involved in the sign-off process. To be honest, it was probably equal, if not slightly more weighted towards the bank funding that we had as well. So we had private equity and bank funding and it was kind of jointly funded through debt. So, yeah, the bank process was probably more rigorous, but that served the purpose for the private equity team as well. So they knew that we were having to do a really diligent process for the bank. So that would kind of give them the comfort that the process had been followed well.

Speaker 3:

Um. So yeah, that was around. You know almost two types of valuation. So we had independent value, we had financial due diligence, we had legal due diligence, um, and then we would go through the kind of the whole building the forecast model and forecasting out and then measuring against that as we were going through the process, and then that would then be created into a board paper which we would have all the demographics and all that kind of stuff. So they were very much involved in looking at that, challenging those. But it was a good time for that industry, um, so there wasn't a lot of pushback to say no to things, especially as the, the multiples for groups of of our size was looking quite good, so the arbitrage on every deal was looking relatively good and obviously you're.

Speaker 2:

You're managing two types of fundraising obviously, the private equity supporting position and the bank itself. What did you learn from that process in terms of raise for an M&A strategy? What were your key takeaways from that process?

Speaker 3:

Having a really good financial model. Um, yeah, that that was the the massive takeaway from it. I mean, if you picture, we've got an underlying business which has to be, is it's got its performance and relatively ups and downs and whatever else is going on. We've got a number of acquisitions that will be dropping in at various points and we've got acquisitions that are have been dropping in through the prior year. Um, so we're measuring. We're measuring different cohorts of performance of existing business, um, businesses that haven't annualized yet, that are with us, and then we're producing that into a cash flow forecast and a funding model that says, okay, when are we going to need cash? Um, who are we going to need it from?

Speaker 3:

And again come back to that point of communication is keeping that model updated, refreshed and live and accurate, so that you can then have the conversation with the bank and the private equity funders to go, right, I'm going to need, I'm going to need this much money at this point, and then they can say to you okay, to make that happen, I need this, this and this to happen before that point. So, yeah, that was probably my first introduction into how a really good integrated funding model really, really helps you, as a CFO, be able to do your job in the best way and give the funders the confidence that that works and they don't need to worry about how that model works, because in general people have got it in Excel and there's going to be quirks and all this kind of stuff on it. So I think having confidence in your own the and the outputs that it's giving um, yeah, that's, that's a huge thing and it's also, I guess, so, and I'm linking this to my own experience.

Speaker 2:

but the project management because you you know where you need to end up, you know it's making sure that you can see the road ahead, I guess where that cash need is going to hit and what that looks like, so that you can kind of work through the dependencies further back and get ahead of them and make sure that you're engaging.

Speaker 3:

Yeah, absolutely yeah. And knowing that, you know, is my performance on a level where I can be confident in it? Is my performance on a level where I can be confident in it, or what are the risks to my future performance and cash flow and how much of it is driven from? Underlying in that business is quite a lot of recurring revenue, so you could be fairly certain on what your cash flow is going to do from your existing cohorts. Then the challenges were about okay, what does an acquisition funding look like? How much extra working capital do we need? Are we buying a property at the same time? All that kind of stuff. So yeah, that was the overlays for for funding was quite, quite interesting and did you work off different like scenario based models.

Speaker 2:

So did you have like, if we hit these goals or, you know, if one of the acquisitions doesn't quite hit targets, this is how the cash, you know the model will look moving forwards like, how did you approach? Again, because you're juggling a lot of you know there's a lot of plates in the air when you've got multiple acquisitions yes, um, yeah, I think, yes, definitely.

Speaker 3:

So we definitely had scenarios. I'm just um, I've got ptsd, um, I think those, um managing those multiple scenarios definitely a a challenge. Um, yeah, like I said, we had, we had quite a lot of recurring in the underlying business, so that wasn't necessarily as much of a challenge, other than these kind of annual drops that we had as children went to school, um, so, um, more around, we would probably model them slightly below where we'd value, just to give us, give ourselves some headroom. But then, yeah, make sure we had a model that we could just kind of tweak very quickly to go okay, if everybody underperforms by a certain amount, what's that? Just due to cash? It gives you something you take forward forever more of having good, good, simple scenario planning in a model is invaluable so that when somebody says what happens if we slightly underperform and you've got to change a thousand different cells to try and make that happen, um, it's not not practical I could feel the ptsd coming through.

Speaker 2:

That's obviously. That's the voice of it. We've talked a lot about the nursery business you worked with. You know what other experience did you have with the M&A? Because I can't, did you? You didn't jump into that as your first sort of M&A journey, did you?

Speaker 3:

there was a few other opportunities prior that you got involved in that yeah, so, um, I mean, the first business I worked in was um in co-op pharmacies, um, so I was quite lucky, I qualified and everything there, and then my right final role there was um the running the finance side of acquisitions for that business. So that was um amazing experience at such a young age. But again, similar sorts of things financial modelling, putting board papers together, but we were buying chains of 15, 20 pharmacies at a time. So that was challenging, bigger deals, but only responsible for the financial modelling side of things there. But again, amazing grounding for kind of gaining experience to then to then move on. And then the second, the business I moved to after that we were similar sort of thing we were, we were growing by. It was pharmacies again, but um, on a smaller scale. So, um, yeah, same sort of thing and did you notice any differences between?

Speaker 2:

obviously the nurseries was more mom pop style businesses, whereas you know it sounds like you're working with bigger businesses or more established groups and chains in in your other role. So were there any differences to the process and how you as an organization approached?

Speaker 3:

yeah, I think there. I think the big thing was that the scale of those meant you had more stakeholders and you probably had advisors in the middle. Each business would have a broker or something like that in the middle, which upsides and downsides to that. The communication can sometimes get lost a little bit, but equally, you've got a buffer or an airlock between the two businesses that can have a sensible conversation and work out what are the important conversations to be having if there's a negotiation to be had. So, yeah, there's, there's upsides and downsides to that.

Speaker 3:

I think, um, but then I think, yeah, the I don't want to say professionalism doesn't seem like the right word, because the people that were running the nurseries were professional people. But I think the financial and business experience of the people that would be running a chain of 15 pharmacies they've probably been brought in to run that chain of pharmacies, as opposed to having grown up as a in that case, a pharmacist that then ran a chain of two or three this was somebody who'd been brought in to run a chain of 15. So they were probably an MD or a CEO that were doing that.

Speaker 2:

So, yeah, they're able to talk the language a little bit more and obviously in your, your current role as a fractious CFO, you're working with number of different businesses and you know and you seem to specialize in that sort of getting event ready how do you go in and assess a business, you know, when you know they've got an event coming up, whether that's in six months or five years, what are sort of the things that you look at to figure out where, where you should start a cfo?

Speaker 3:

yeah, I think. I think it's take all those learnings that I just talked about and take the ptsd and and um and start with a. How do we mitigate against all those things being difficult down the line? How do we mitigate against those as early as possible? Um, and that's from purely from a finance point of view. It's it's it's understanding the business and understanding the industry that they're in and then translating that into.

Speaker 3:

Okay, if I was buying this business, what would my financial due diligence process look like? Okay, now reverse engineer that back into the business. What do they need to have to be able to show to a financial due diligence provider that will just give them the confidence in the numbers that they are looking at, and I suppose the other side of it would be being able to, the other side of it would be being able to. In my role now is being able to show the financials in such a way that you are adding value into a deal or an event. When that actually happens and I guess what I mean by that is, smes generally will have their finances and they'll probably be running monthly management accounts and that's great. But if you're not showing that and articulating it in a way that you can prove and show the growth or the value that you've got in that business. And so then, so generally, when we come into a business, we'll be putting long-term trend dashboards in place and that kind of thing that we can show that over time this business has grown like this and the consistency in the income is this and the consistency in the profitability is this.

Speaker 3:

Or getting to non-financials with kind of customer churn and that kind of thing that may exist in isolation or in one-off, but if we can present that in one dashboard that you can then put that in front of an investor or a funder, you can very quickly look at it and make an assessment and go this looks like a good business. Think, the graphs are all going in the right direction and being able to do that quite quickly for somebody, as opposed to giving them a massive data sheet of numbers and expecting them to be able to draw the conclusions themselves. Just present it in the in in a way that they will understand it very quickly and get excited very quickly. That's the's the whole idea of it is to kind of make those numbers interesting and exciting for them. That then you know I'm paying. Well, am I willing to pay six or seven times multiple for it, as opposed to four or five, if I've got to do a load of hard work to understand what's going on.

Speaker 2:

And what advice would you give a CFO? They've just been told that you know the owners want to go for a buyout and they need to get the business ready. What advice would you give to a cfo about how to do that well?

Speaker 3:

so I would say first port of call, if you've not already got it, get yourself a really good financial model in place, because that's what the diligence will be based off. That's what all the valuations will be based off. That's what they will work out how much debt they can raise for the business. They will be running scenarios. So if you've got back to this same idea of having a really good financial model with your historic actuals in place, your levers and things for your current income and margins fully integrated into your balance sheet, with cash flow and a funded model, that means you can overlay debt and private equity funding into there and then be able to run your scenarios on your forecasts. And it sounds very complicated but it's not. It's just jigsaw pieces that you put together. Complicated, but it's not, it's just jigsaw pieces that you put together. That will be the basis for so much of that diligence process and valuation process. Have that, have confidence in it, know how it works, know it's robust, have good version control. That's going to be one of the key ones. Have good version control. That's going to be one of the key ones.

Speaker 3:

And then I mean I think there's a few other smaller things. That's the big financially one. There's a few smaller things, like having a commercial we call it a commercial calendar or a commercial diary of each month you've looked at your numbers, write down some notes just in one note or wherever it might be and say this month's performance in three or four bullet points for that month was this happened, that happened, there was some one-off things of this in the costs or there's one-off things in revenue of this, and start maintaining that. If you start maintaining that, two years before you go into a diligence process, they'll look at all your numbers and start asking you questions about things from 18 months ago that you just no idea what those things were.

Speaker 3:

If you've got this one page document that says October 2024, these were the things that happened and that's the reason for my balance sheet going in that direction or my P&L going in this direction so valuable. Difficult to see the value in it at the time when you're creating it, because I know this. I'm writing down things that I know, but when someone else is looking at it afterwards it's a really, really useful little tool that somebody taught me to do that. I'm not claiming it was my idea, but, yeah, something that I've kind of taken on board now and put in place with all the businesses.

Speaker 2:

No, that's some great suggestions. So to anyone that is in a business that even if I guess, even if they don't know they're going for an exit or an event just starting to have that discipline now might mean that you're prepared if something pops up on the radar as well yeah, exactly awesome. So, um, andy, this has been an amazing conversation. Thank you so much for sharing your experience. Have you got any final thoughts? Is there anything we haven't covered about secret sauce to success when it comes to m&a?

Speaker 3:

no, I think I'm gonna. I'm gonna keep banging on about the same thing, about it's about communication. It's about being open, telling people what's going on um, yeah, and that goes for kind of all stakeholders, everybody involved, internal teams um yeah, but go into the nursery one of the best things we had in in the nursery business for managing expectations. We just had a whiteboard in my office that had a list of all the things that was that were coming down the pipeline, so nobody was surprised when we did a deal because they'd seen it was theirs. This many nurseries are going to be coming in on this date and another communication tool just to keep things kind of live and people aware.

Speaker 2:

That's it, you know. Thank you, Andy, so much for sharing your insight. If people want to learn more about you and what you do, where's the best place to find you?

Speaker 3:

So you can find me on LinkedIn, Andy Mellor. You'll see me there with Fractional CFO helping people get event ready, and website is wwwsummit17.couk.

Speaker 2:

Fantastic. Thank you so much, andy, for joining me and to our audience. If you have some questions, either about mna, about getting event ready that I haven't covered, I'd love to hear your thoughts. So please do message me directly on linkedin, send me an email, the uh, send me a quick message. I'd love to hear from you myself as well. Well, thanks so much, andy, thanks to our listeners, and we'll see you next time on the CFO 4.0 podcast.

Speaker 5:

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