April 14, 2017
Interviewed by: David Snow
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When IT Upgrades Go Smoothly (or Don’t)

Three private equity value-creation experts describe the roll-out of an upgrade to the data and IT platform, and what success looks like, and what red flags to look for.

Three private equity value-creation experts describe the roll-out of an upgrade to the data and IT platform, and what success looks like, and what red flags to look for.

When IT Upgrades Go Smoothly (or Don’t)
The Data-Driven CFO

David Snow, Privcap:
Today, we’re joined by Shahriyar Rahmati of Comvest Partners, Dave Noonan of RSM and Kevin Masse of TA Associates. Gentlemen, welcome to Privcap. Thanks for being here.

Unison: Thanks for having us.

Snow: We’re talking about adding value in a private equity investment and the centrality that the CFO and his or her team plays in that process. Now that we have these incredible new tech and data platforms, that is becoming a huge opportunity for private equity investments. Let’s talk about the fact that private equity firms look at a company, assess its weaknesses and strengths and come up with a plan to add value. Then, once they actually own the company, it’s time to actually implement that plan. Dave, as you work with clients, what does it look like when a plan is unfolding as it was hoped to unfold? And what does it look like when things aren’t going well?

Dave Noonan, RSM US LLP:
Yes, it’s pretty straightforward. When things are going well, timelines are tracked appropriately. We’re tracking down the right path, the steering committee meetings go very well, the status reports are clear and concise. When things go off the rails, it’s pretty easy to tell where things start to slide. People are confused about what their objectives are. They can’t translate that into real actionable issues and it just become obvious.

Kevin Masse, TA Associates:
At least in my experience, for a lot of our companies that we call the PMO—the project manager of—the 180, that value-creation plan.

Snow: 180-day plan.

Masse: The 180-day plan often resides with our CFOs, whether it’s the CFO or someone within his or her organization, driving that program management that David was just alluding to. So, I would agree with that. We deploy some best practices, particularly in the first six months of ownership, to ensure that we stay on track and we’re tracking progress relative to goals that we establish in connection with our 180. Some of those best practices include meeting monthly as a board versus quarterly. The cadence of interaction with our companies is greater in the first six months.

We feel very strongly that if we can nail that 180, a lot good things can happen and you can mitigate risk around whether you missed it on the initial hypothesis, whether there’s something happening in their underlying operations that you missed during diligence. If you nail it during that 180, you’re going to flag that stuff pretty quickly and you can start to triage and adjust where needed.

It’s when you close and you’re not watching the details closely, right? It’s when you give space because everyone’s exhausted or there’s a lack of resources to actually execute on the 180 in a very detailed manner—that’s when things start to fall through the gaps and we start to see it. It manifests itself in retention and in financial performance. Frankly, it manifests itself in the readout that we get from our executives as we engage with them at the board level.

Snow: It’s one thing for a private equity sponsor to come into a portfolio company and install a world-class, amazing data system to really help the CFO and team take advantage of this new opportunity. It’s another thing for that team to actually adopt the data platform and use it the way it’s supposed to be used or have the skills or even the mindset to use it the way it’s supposed to be used. How big of a risk is it that the team just doesn’t execute on the tools that are placed in front of them?

Shahriyar Rahmati, Comvest Partners:
The good news is it’s a pretty preventable mistake. If you actually built the system or explained why the system was being put in place and did it in conjunction with your management team, you almost inevitably go through the why as you’re putting it in, right? You generally don’t wake up Day 3 of the investment and there’s a terrific ERP system sitting there for them underneath.

Noonan: My experience has been that you get the functional line leaders involved in the implementation process early and you keep that iteration going to where they see the changes being made and they understand how the system is going to be utilized and operated—whether it’s ERP or some sort of a BI solution. If they understand how is this going to be used, what’s their role in accessing that data and how are they going to get to it, by the time you get to go live, it’s not a big bang or a big training exercise that takes two weeks for people to figure out how to get an invoice out the door.

Masse: We get excited when we implement a new system, not only because it’s going to enable a new capability for our companies, but it’s an opportunity to re-engineer work flow processes. It’s not uncommon for us to see, during our diligence, an opportunity to drive performance improvement in the business. It could be a pricing opportunity. It could be customer retention. When you start to do root cause analysis, you look and say, “Why aren’t you addressing retention in a certain way?” And you realize it’s because of a process that could be improved, right?

So, when we implement a system, it’s also an opportunity to triage how they’re doing what they’re doing, to make recommendations, to import potentially. A lot of the vendors today will provide you best practices and you guys do a great job at this.

Rahmati: So, we’re implementing that suite at one of our portfolio companies that’s in the healthcare space. And one thing we did with Dave’s team was pull apart the current state and very simply where, again, are all those systems—whether they’re spreadsheets, a fixed-asset system, payroll over here or more complex elements of the revenue cycle that relate to healthcare that are in different systems? Through this implementation, there are a number of processes today that are quite laborious and manual that are going to benefit from a significant degree of automation. Controls improvement, just general robustness, will then enable those same resources and same team… [to] have more interesting jobs. They’ll actually be able to think about and reflect on the information coming through this system.

They’ll learn new capabilities and, as finance professionals, they’ll advance and mature in their capabilities. They’ll be happier in the jobs they have today and it’ll build them for roles they may elect to take in the future either with the company or outside.

Noonan: The other side benefit of dispositioning those kinds of point solutions around the enterprise is a lower cost of ownership, less points of failure and a better operating environment. Going back to your point around the best-practice templates that you can leverage to de-risk an implementation—especially of ERP, for example—let me ask what points of failure are there? If you lose the discipline of sticking with that best-practice template, especially early on in the process, and you allow the scope to creep outside of that, change management becomes a real issue. And, all of a sudden, you’ve got one of those nightmare implementations that are six months overdue and $1 million off budget.

Masse: Yeah, we don’t like those.

Noonan: Don’t like those at all. Yeah, we don’t either.

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