The value cultivators
Unearthing the competitive advantage through value creation is usually done in collaboration with investment teams, but which responsibilities fall to the CFO?
Speaking to the CFOs of Growth Capital Partners (GCP) and Ambienta to get to the root of their role in value creation, we explore how their experiences help sow the seeds for growth by establishing portfolio company networks, compiling shared resources and reporting on ESG metrics.
Daniele Gatti, partner and CFO at Ambienta, explains how his role is directly aligned with the two value creation departments at Ambienta: “You can think of my role as partner in charge of the ManCo. I share my knowledge and experience with both the value creation and ESG teams to promote best practices. In other words, I am a facilitator in their project implementation.”
Similarly at GCP, John Marsh was hired as finance partner because of the expertise he had accumulated in the industry and his ability to help businesses grow. He comments: “Part of me coming onboard was to work with the portfolio companies more directly, given that my background is a mix of financial due diligence and working in companies more directly.”
Likewise, portfolio director at GCP Sam Ellis draws from his 13 years’ experience in finance and technology, during which he founded his own technology construction business and was previously head of strategy at fintech Afterplay.
All three professionals enrich their portfolio companies with vital resources to thrive.
GCP prefers partnership-style investments, backing businesses to develop what they already have and helping founders to elevate themselves further.
Marsh leads business operations, fund finance, tax and portfolio reporting, in addition to fostering a network through the implementation of cross-portfolio CFO days. He stresses the importance of portfolio collaboration, as the invested companies often experience similar challenges, achievable through regular CFO forums: “We invite guest speakers, one of which spoke about pricing strategy – a useful topic providing insight into how to respond in an inflationary environment. Other topics have included employee engagement, employee retention and system upgrades. Just having a space for all the CFOs to network is something they really appreciate.”
As well as organising CFO forums for portfolio companies, Marsh’s other value creation responsibilities include ESG data collection, refinancing, and monitoring and reporting financial information.
Ambienta’s Gatti explains how he collaborates with CFOs at portfolio companies: “We are considering implementing an annual meeting with all of our CFOs, but at the moment it’s working for us on an on-demand basis. The conversation is always facilitated by someone from the investment team who links us together. Essentially, they know their businesses inside out, so we encourage them to reach out for advice on things like insurance, the use of consultants, specialist legal representatives and so on.”
‘Grow your own’ toolkit
A large part of GCP’s value creation effort is driven by Ellis, who was appointed portfolio director eight months ago to assist with streamlining the whole process. In this way, the value creation process is a split function between Ellis and Marsh.
Of particular note is Ellis’s construction of the growth toolkit, a living document that serves as a value creation encyclopaedia. The documentation, available to the whole team via Sharepoint, records optimisation strategies and the steps behind previous success stories. This means when the process has to be repeated for a different portfolio company, the foundations of the value creation procedure are already there to speed things up.
Ellis elaborates on the work he has accomplished with the growth toolkit so far: “The toolkit consists of more than 100 precedent documents linked from different areas. For example, if you were looking to set up an incentive structure in Hong Kong, you can find all relevant previous documents in the toolkit to assist with speeding up that process. The comprehensive solution removes duplication of effort and records strategies that have been successful. It is intended to be a single source of truth for most key value creation initiatives we have in the portfolio.”
The document gets updated a few times a week, serving as a living guide to capture workflow templates, ultimately assisting with adding value quicker to portfolio companies.
Gatti shares some common discussion points in conversation with portfolio CFOs: “One of the hot topics at the moment is cybersecurity. We have a working group consisting of myself, our CTO and the director of the value creation team, to understand and implement the best practices across the management company, the portfolio company and all the stakeholders of the group.”
Another example of value creation at Ambienta is reducing risk with appropriate insurance. Gatti observes: “Companies need to have D&O insurance, EPI insurance and so on. These are products that you want to manage as a group more than as a sum of parts, so you can get better fees and broker attention. I work closely with the value creation team and ESG team to mitigate any risks, and we also have a group broker that we work with.”
For Ambienta, an environmental sustainability investor, value creation is directly linked to ESG. Two separate teams – value creation and ESG (as part of the sustainability and strategy team) – create value by managing risk and proactively contributing to the improvement of ESG practices.
Leverage is not the main tool used to generate returns at Ambienta. It focuses instead on other levers, such as scaling up assets, professionalisation of management teams and other operational improvements from an industrial rather than a financial perspective.
The focus on sustainability means the firm directly links ESG with value creation and has always done so. That being said, Gatti believes more CFOs are taking responsibility for certain value creation processes as a result of increasing regulatory requirements within the EU: “The CFO role has evolved more broadly in the industry as ESG has become mainstream, with more and more CFOs also taking ESG under their umbrella of responsibilities.”
These are some of the ways in which CFOs cultivate value, but the examples are not extensive. The way a head of finance engages in this process is dependent on previous experience, varying from firm to firm. However, a clear pathway of communication available to portfolio companies appears vital to their growth trajectory, along with access to streamlined and detailed documentation.
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