CFO Stories with Eight Advisory

In this episode one, Clair sits down with James Olsen, the ex-Head of Haleon Transformation, known for his work leading the carveout of GlaxosmithKline’s consumer division, who shares insights on considerations for CFOs in a carve-out situation.

 

 

Clair Green: Today we’re going to think about considerations for CFOs in a carve-out situation. I know this is something you have a lot of experience in, James, so I’m really interested to hear your insights today. Let’s dive straight in. First question. You’re faced with a CFO who is looking at the prospect of carving out a non-core business unit or set of assets. One of the initial challenges in such a situation is redesigning the finance operating model to support the carved out entity effectively. So in your experience, when you’re approaching such a situation, how do you advise a CFO as to the key steps and considerations in this process?

 

James Olsen: That’s a really good question. One I’ve had to ask on a few occasions. I think the role of the CFO is the first thing to consider. It’s highly likely you’re going to be involved either as a sponsor or a key leader in that change. So you’ll need to make sure that you’ve got the capabilities and the capacity and the time to actually watch your role of how engaged are you going to be. And more importantly, once that’s established, the team around you and the capabilities there.

 

But I think from a business perspective, it’s about understanding the as-is model of where you are, the processes, reporting, what tools and capabilities do you have around you. And then as you start to think about what the future of the operating model will be, where you want to go. So understand your as-is. Often that can be much more complicated than you think. And then moving towards the “To Be” model. Are you/how are you going to manage that change? And what efficiency or process improvements would you want to take on that journey? Because it’s an opportunity to really consider what the future might look like.

 

CG: I suppose it’s also like from a position of the acquirer, they may want the entity to operate on a stand alone basis or they may in fact have a shared service centre they’re hoping to transition some of the finance activity to. So I suppose it also depends on …

 

JO: Absolutely. Which business model are you looking for? A hybrid? Are you looking to take on a best of both worlds? Obviously, I would expect you’d be looking to make some synergy savings, where do you start to see those coming through? And then as you start to build out those, that thinking in terms of people, process, technology, systems, then you have the opportunity to develop a difference or a similar model depending on the strategy.

 

CG: Let’s move on to leadership. So we all know that leadership and change management through any type of transformation or change is very important. If you’re looking at leadership and resource allocation for a successful carve out from a finance perspective what would you say are the key considerations to putting together the right team ensuring the appropriate oversight and governance and the skills to have a successful carve out.

 

JO: So I think if you step back and say that often separation and carve out work isn’t the traditional model of the business, it’s an opportunity in many ways to actually develop key talent within your organisation and giving people the opportunity to do something a little bit different, to build their business, their enterprise, their M&A skills and capabilities.

 

So when you’re looking at your talent pool, who are the right people to step up and take on a broader leadership role because as I say often, finance will be front and center. But it’s not a traditional finance reporting or management role. You are taking people into a different place. But if you are able to invest or feel comfortable to invest, then it is a really amazing opportunity for people.

 

CG: I would imagine that you’ll be bringing in some external support in many occasions, so an opportunity to work with external advisors, managing internal resources, reporting up to often a C level within the organisation, so in terms of exposure, in terms of accountability. And then you need people who actually understand the business. Because I think that’s really important when you’re affecting change, as you mentioned, it’s how do people, how will the organisation respond? Is it a resilient organisation? Do you have the right internal tracking mechanisms? As they might be coming back to areas such as synergy. So you need people who understand the business, but are also able to work with people who are going to be able to bring in that external benchmarking inside independent perspective. So it’s a different but exciting role for the right person and the right team to really make that effective change.

 

External advisors won’t know the nuances of that specific business, but then perhaps your finance doesn’t have the experience either. You need to assess the current operating model and then work out what that means for a future operating model. I think it’s a case where both parties can learn. The external advisors can learn about the nuances of that specific business and the internal team can perhaps learn how to put together a target operating model if that’s something they haven’t been involved in.

 

JO: Yeah, absolutely. I think you should be looking to bring that best of both in terms of the external world using that data benchmarking opportunities to really challenge the assumptions of the business, what does good really look like, where is best practice in your sector, where is an opportunity for you as a business to actually think slightly differently. But you need to run the business at the same time. So you need that continuity, you need that understanding, how does the business operate, how does the business make decisions, how does the business need to think about the future. You want that holistic view that brings in all the different perspectives.

 

CG: So we’ve talked about having external advisors there with specific skill sets like target operating model design, perhaps a carve out playbook to accelerate the process, as well as having internal advisors involved in the carve out who can tell you about the nuances of that business. From a CFO’s standpoint, what are the distinct roles and responsibilities you would envision external advisors to have versus the internal team in driving a successful carve-out execution?

 

JO: You used the term playbook, I think that’s a really key area because there will be so much to do. I’ve been in business multiple different work streams, a governance structure, depending on the organisation how that will work. Advisors will be able to help you accelerate that. If you are an organisation that’s done this on many occasions, you may have developed that internally, but that’s more often the case. I think what advisors bring is that 360 approach in terms of, I would say, have you considered some of the key work streams that don’t traditionally get a lot of coverage, so whether it be the change management side, whether it be the role of the data in the business. How are you going to deliver this high level, simple thinking that will be different, how you’re going to do this and helping hold the business to account. There’s a significant investment of time, money, people, etc. You want visibility of the right decisions at the right time. And the organisation needs to establish a bit of a drum beat in terms of how it’s going to do this.

 

CG: And when it’s going to deliver back to the board and the shareholders or internally what the resources are that have been committed are going to do. I think it’s fair to say in the consultancy world we tend to have a methodology or a playbook, I don’t know if you call it a playbook, but a methodology or an approach that we’ve used before. That doesn’t mean you don’t tailor it to a specific business, but I think that’s what helps consultants have more comfort, that they can stick to certain timelines, get deliverables done by certain timelines. I think that can also really help in a carve-out situation because if you haven’t done a carve-out before, you’ve got limited internal resources to help you deliver it and you’ve got an acquirer who wants it done by a specific timeline, then having some external advisors to keep you to that timeline using a sort of proved methodology. It’s certainly very helpful.

 

JO: No, I agree. And I think it’s about both parties in the planning phase of the work actually committing to, as you say, a methodology, a playbook, but also a timeline. Because you don’t do this day by day. It’s not even week by week, it’s month by month, quarter by quarter. And you need to understand what are the big areas of focus going to be coming up. This relationship is absolutely critical as you’re going through the tough times.

 

CG: Yes, very rarely does everything land on time to budget. Okay, so then moving on … you are carving out a business and you’ve understood what your current operating model is, you’ve got a fair idea of what the target operating model looks like. But often you go into sort of an interim operating model that transitions you between the two. So when you’re transitioning from an interim operating model to get to that long-term state, what do you think are the key considerations for finance leaders during that phase to ensure smooth handover, to ensure that you’ve captured the synergies? Whether they’re cost synergies or revenue synergies and you’ve maintained financial integrity. What would be your key focus areas? Would it be around financial controls?

 

JO: I think financial controls definitely because you’re in a period of transition and from a wider business perspective, I think that’s absolutely critical. That’s at the heart of the business in terms of how you need to maintain that level of oversight. But I think in the world that we live in now, particularly in that interim phase, a degree of flexibility and availability is going to be really important because you’re translating at that point theory into practice and you’re not necessarily at your final operating model stage. So you’re assuming that you’ve got control of the business, you’ve done a lot of the heavy lifting. However, there is more work to be done as the organisation is transitioning. You will know more about the business, you will know more about the financials, the allocations that you’ve made to your assumptions or your cost base, they may well need to be reviewed and updated. So it is not a steady state situation yet. Your forecasting, your budgeting, whatever it may be, you have to really work hard to make sure that you’re refreshing or updating where you think you are, because the world will have changed in that period of time. The business may be in a slightly different position. So to take literally what you’ve done six months ago and assume that’s all will apply, that may not be the case.

 

CG: Okay, some really valuable insights there for navigating the complexities of carve-out situations. And your experience has certainly highlighted some critical considerations and perhaps tips for CFOs that should they look to ensure a successful transition within a carve-out situation. So to wrap up then, I think one of the things that comes to mind, which is actually in our whitepaper on carve-outs, it says, “Sellers who help to make the ride smooth for all bidders will benefit from greater competition within bidding parties, which will encourage competition and can push up the asset sales values.” James, what’s your thoughts on that quote?

 

JO: I think it’s a really powerful quote actually. I think the process is always going to be challenging. The complexity of managing for any organisation is there, but as you say, competition will drive price and value and there will always be a very high level of scrutiny on the valuation, on the price, in terms of people looking to get the right returns. But I think that actually the way that that describes the challenge I think is a good one.

 

CG: Oh great. So some key takeaways from today’s interview then. So the first is: redesign the finance operating model to align with the carved-out entities needs, and also the acquirer’s expectations because it depends on how they see that part of the jigsaw fitting in with their operations.

 

JO: Assemble the right team. And get the right balance of internal and external advisors as well. Internal people understand all the nuances of the organisation. And that’s particularly important when you’re doing a carve-out because you want to understand those nuances. You don’t want value to be eroded in the process of carving-out because you haven’t understood those nuances.

 

During the transition phase, prioritise financial reporting integrity, optimise systems and data integrity, but most importantly, take control early on, be able to control the finance function early on before you look to extract synergies. Maintain close collaboration with the acquirer and align the integration plan with the broader M&A strategy.

 

CG: And blend internal sources and external advisors to make sure you have a cohesive team and leverage organisation knowledge and best practices. I think those are probably the five key takeaways, right, James?

 

That’s all for today’s CFO Stories, but we look forward to publishing our next interview in the series soon.

 

Stay tuned!