Why “cash culture” is a critical lever in today’s PE climate

In this episode of the NextWave Private Equity Podcast, Nick Boaro and Sven Braun of the EY Strategy and Transactions and Working Capital Group join Winna Brown to explain why freeing cash from working capital can allow PE to prolong sustainability, realize value sooner and invest earlier.

Working capital is the cash a company has tied up in assets less the cash it holds as a liability; a financial metric that represents the amount of day-to-day operating liquidity available to a business. Freeing cash from working capital is the cheapest source of additional liquidity often unlocked to pay down debt, fund day-to-day operation or fund strategic initiatives.

Today, private equity funds and their portfolio companies are able to unlock on average 5%-7% of revenue in cash flow improvement within 3-6 months of completing 8-12 week operational improvement programs. A company that optimizes working capital increases liquidity, improves predictability of cash flow and increases visibility in all areas of cash.

Because of COVID-19, many PE funds are laser focused on forecasting and releasing cash to prolong sustainability, realize value sooner and invest earlier. PE funds are asking for liquidity forecasts from across the portfolio to measure exposure, identify opportunities and quickly accelerate cash flow for as many companies as possible. Where corporations have complex hierarchical structures that force them to move slower with more measured outcomes, PE is able to act more quickly.

Having a “cash culture” is important for any company, especially now. After all, cash is the cheapest source of liquidity a business can generate, and it provides critical funding in either a downturn or growth period. Healthy cash flow is a positive indicator of a company’s preparation for an economic downturn; however, it isn’t too late for companies to improve cash flow, so they have greater optionality when opportunities arise.

Four reasons why a PE-backed company would want to optimize cash flow now include:

  • Up to 7% of sales can be unlocked and released quickly.
  • Unlocking cash is the cheapest source of liquidity. 
  • Companies with optionality are in a stronger position to reinvest for growth.
  • A successful outcome in one portfolio company can inspire other portfolio companies to take the same journey.

Presenters

Sven Braun
EY-Parthenon Principal, Ernst & Young LLP
Nick Boaro
EY-Parthenon Partner, Ernst & Young LLP
Winna Brown
EY Americas Financial Accounting Advisory Services and Private Equity Leader

Podcast

Episode 09

Duration 27m 00s

In this series

series overview
(Event List - Manual)

Why “cash culture” is a critical lever in today’s PE climate

In this episode, our speakers explore why freeing cash from working capital can allow PE to prolong sustainability, realize value sooner and invest earlier.
Podcast

Episode 09

Duration
27m 00s

Presenters

Sven R. Braun

EY-Parthenon Principal, Ernst & Young LLP

Nick Boaro

EY-Parthenon Partner, Ernst & Young LLP

How PE can manage COVID-19 tax implications in the US and Europe

In this episode, our speakers help PE funds and portfolio companies understand and manage the tax implications of recent coronavirus stimulus packages.
Podcast

Episode 08

Duration
25m 07s

Presenters

Winna Brown

EY Americas Financial Accounting Advisory Services and Private Equity Leader

How to navigate a remote close during COVID-19

In this episode, our speakers discuss how to manage a remote close in today’s extremely volatile financial and regulatory environment.
Podcast

Episode 07

Duration
29m 00s

Presenters

Karim Anani

EY Americas Financial Accounting Advisory Services Transactions Leader; SPAC Co-Leader

Lukas Hoebarth

Principal, Mergers and Acquisitions, Ernst & Young LLP US

Why the CFO is becoming private equity’s quarterback

In this episode, our speakers explore the evolving role of the private equity CFO.
Podcast

Episode 06

Duration
17m 15s

Presenters

Mike Lo Parrino

EY Americas Financial Services Organization Private Equity Leader

Winna Brown

EY Americas Financial Accounting Advisory Services and Private Equity Leader

What 2020 and beyond looks like for global private equity

In this episode, our speakers explore the outlook of private equity and its key focus areas in 2020 and beyond.
Podcast

Episode 05

Duration
18m 26s

Presenters

Andres Saenz

EY Global Private Equity Leader

Winna Brown

EY Americas Financial Accounting Advisory Services and Private Equity Leader

Why private equity can endure the next economic downturn

In this episode of the NextWave Private Equity podcast, our speakers review the industry’s evolution since the 2008 recession and its position for growth.
Podcast

Episode 04

Duration
26m 16s

Presenters

Andrew Wollaston

EY Global Reshaping Results, Turnaround and Restructuring Strategy and Transactions Private Equity Leader

Winna Brown

EY Americas Financial Accounting Advisory Services and Private Equity Leader

How private equity-backed companies can prepare for IPO

In this episode, our speakers discuss how PE-backed companies can meet shareholder expectations after the IPO.
Podcast

Episode 03

Duration
17m 46s

Presenters

Jackie Kelley

EY Americas IPO and Financial Accounting Advisory Services Capital Markets Leader

Winna Brown

EY Americas Financial Accounting Advisory Services and Private Equity Leader