As global alternative investment managers drive international operational improvements in their portfolio companies, are there lessons to be learnt and applied for GP operating models? Gordon Stuart, Chief Financial Officer of TMF Group, a private equity backed international professional services firm in over 75 countries, examines the challenges of cross-border operations.
Sometimes in corporate life it’s a struggle to ensure your firm is more than the sum of its parts. For TMF Group, that challenge has been particularly acute as we acquired more than 60 businesses around the world between 2005 and 2008. During that time TMF Group embarked on a land grab, buying up businesses quickly to build our international footprint, and when that acquisition spell ended we had to set about building a common culture across the firm. Like the empire-builders of old, we had to work out how to absorb and administer our new territories even as we acquired new ones. It was vital we got this right. TMF Group’s success depends on giving clients the same experience no matter where they operate and who at TMF Group they deal with.
TMF Group helps companies expand overseas by allowing them to outsource critical back office functions including HR, payroll and corporate secretarial. We provide local expertise on everything from understanding tax regulations in Jakarta or the perils of payroll in Sao Paulo to obtaining a trade license in Guangzhou. We do this so our clients don’t have to, leaving them to concentrate instead on what they do best.
In 2008, we were acquired by private equity firm Doughty Hanson and three years later they merged us with another portfolio company, Equity Trust. It was only then that we were able to pause for breath and begin turning our huge global footprint into a major competitive advantage. We embarked on our “One TMF Group” project, introducing common systems and processes and adopting a multi-jurisdictional approach to sales.
Looking back, it did sometimes feel like TMF Group was the biggest company no one had ever heard of, but when I explain our role to contacts in the business world they immediately see the value in what we do. I know from previous jobs how time-consuming it can be to set up a small operation in, say, Italy. Before you can start trading you have to incorporate a company and that means hiring at least one lawyer and an accountant with specialist local knowledge or engaging a plethora of local advisers all of whom need to be managed and with no single point of accountability. This comes at a cost and staff could leave at any time or advisors start to compete directly with us. TMF Group gives companies the comfort of knowing those functions will always be fulfilled and that is a huge burden to remove from a CFO’s shoulders.
That is not to say we haven’t had challenges of our own. Local self-starters founded many of the businesses we bought and their entrepreneurial spirit endures. If there is a choice between going to a client meeting and hitting an internal filing deadline, the client meeting will win out every time. Therefore creating some basic corporate discipline has been vital. To deliver services to our clients we need to have the right people in place and we can only do that by looking forward, planning and forecasting.
We have also worked hard on making the business more productive and efficient. We used to have a decentralised and disparate IT operation because local MDs had the autonomy to buy whatever products they deemed appropriate. At one point we had over 4,000 different applications in use across our business. We are now in the process of carrying out a major rationalisation of our IT estate, settling on a core set of business-critical applications that we use across the organisation. As an example of this, our businesses worked on several different email platforms and migrating them onto the same system saved a lot of time and money.
We have also re-focused our strategy on the internal finance systems that we use and have moved to a small number of core systems that are best of breed for the territories we operate across. In addition, I have created new reporting lines, with five regional Finance Directors reporting to me rather than the regional CEOs.
When I arrived, the group finance function was disconnected from the business and we didn’t really engage with country managers. I’ve tried to change what we do so we are seen as a valuable business resource rather than the department that oversees a statutory reporting function. For example, we have upped our focus on cash management across the group and significantly reduced our working capital requirement – all of which drives real shareholder value. In late 2012, we also fundamentally revised our financing strategy by replacing our term bank facilities with a high yield bond. This has given us much more control over what we do with our cash as well as removing short term targets that could adversely restrict strategic choices we wanted to make for the business. On top of this we are working to create a ‘smarter’ set of Performance Management reports that tie our overall corporate objectives down into operational metrics that can be driven by local teams.
After a hiatus of a few years, the empire is expanding once more. TMF Group is starting to acquire companies again in order to enter new markets or bolster our offer in the countries where we already have a presence. When I look back at all we’ve done over the last few years I realise just how far we’ve come. We now look and behave like a large global company, but we have achieved that by focusing tirelessly on knitting together disparate parts of the business. After all, you can never afford to stop focusing on the details.
This article first appeared in Financial Director on 28 April 2014.