March 24, 2017
Interviewed by: David Snow
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ERP Upgrade Success Stories

Three private equity value-creation experts share stories of how a portfolio company’s value was greatly enhanced by empowering the CFO and team with a better data system.

Three private equity value-creation experts share stories of how a portfolio company’s value was greatly enhanced by empowering the CFO and team with a better data system.

ERP Upgrade Success Stories
The Data-Driven CFO

David Snow, Privcap:
Can each of you share an anecdote of an instance when your CFO’s team had an upgrade by way of the technology they use and how that impacted the performance of the portfolio company?

Shahriyar Rahmati, Comvest Partners:
A company that was in the dental practice management space, where patients came in and received a very robust, full diagnosis. Maybe they came in for an emergency. They broke a tooth. They came into the dental center. They received a complete diagnosis. But a lot of times, they’d go in for just that individual broken tooth and leave. They paid for that service—it was maybe $100 or $200 or whatever the amount was—and they left, came back and there was potentially $3,000 to $5,000 of additional work they needed to be in good dental health that simply wasn’t done.

It resided within charts and those charts were recorded with different degrees of completeness in the company’s practice-management system. So, by taking those charts and moving them from paper to electronic and then having those be visible throughout the entire organization, the company was actually able to use a central, outbound call center in combination with patient financing to make it more affordable to get those patients back into the dental centers, to get the care and benefits they needed to from it to keep them in proper dental health. The results of that were massive from an enterprise profitability standpoint.

It enabled the company to largely de-lever, perform a large dividend recap and actually complete an acquisition all with the proceeds that came from that one investment of technology. It wasn’t a massive investment. It came from a great idea—a pain point that people inside the company already had and knew about. It wasn’t an invention of our own. Then, it was putting a system around a process that simply wasn’t there.

Dave Noonan, RSM US LLP:
We were working with a client that had a very disparate environment. It was a healthcare services business as well, and this was actually on the sell side. They were trying to get themselves acquired by one of our private equity clients and we were brought in to help them just aggregate. They had 30 or 40 different sets of books in all these clinics around the country and no way to really pull it all together. Each clinic closed their books on their own. Some did it monthly. Some did it quarterly. Some were only annually. My client had no way to really value the business.

So, we provided some consolidation of the financial system itself. But then, we just put in a nice reporting layer, a consolidation layer on top of it. We were able to bring all the data together on a monthly basis, close the books in seven to 10 days and give them some financials they could actually sink their teeth into.

Kevin Masse, TA Associates:
We got a great case study that was actually led by a CFO—they incorporated both HR software as well as transactional-level detail from their revenue system in their ERP. We had a software company with a significant professional-services component to their delivery model. It was actually a pretty heavy PS component and, when you looked at the margins on the professional-services side, it was just lagging. Industry benchmarks where we otherwise would target for a reasonable level of margin—it pointed to a productivity issue.

But, when you got into the underbelly of the project and started to look at it, at any point in time they had 30 to 40 implementations going on at client locations, including roughly about 500 to 600 PS professionals. So, you had CFOs shrugging their shoulders saying, “I can’t figure out it in real-time. And by the time I figure it out, it’s too late because the project’s done and the consultants have moved onto the next project.” So, we implemented an HR system that all folks would probably know that manages workflow inputs on a daily basis—actually, hourly. We incorporated that into transactional-level detail around revenue recognition. We empowered the implementation team leader or manager of the project with a daily P&L.

Just creating that awareness by our team managers allowed them to free up utilization and manage their profitability better. We saw a nearly 10 percentage-point improvement on PS margin and this was roughly an $80 or $90-million piece of our business. That generated meaningful EBITDA growth by simply empowering the folks who were responsible with execution, with data to pivot and make adjustments relative to what they had initially had estimated.

Snow: Of course, even with a 10% change, combining that with a purchase multiple makes a huge difference on the exit and a more meaningful return for the investors.

Masse: Yes. Anytime we can grow EBITDA at that clip—yes, it drives tons of enterprise value.

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