The deal closes, the M&A lawyers step away, and the real work begins. That’s when recently acquired companies turn to e2E to professionalize their finance and HR functions. In this conversation with host Greg Hawver, e2E founder and CEO Nancy McCullough pulls back the curtain on the first 100 days after acquisition. From “opportunities” that e2E often finds when it walks in the door to recommended tools that drive efficiency, Nancy reflects on 13 years at the helm. With e2E itself acquired just one year ago, she also provides the perspective of an entrepreneur’s “journey to enterprise.” “It was fun going through due diligence, having done that many times for other companies,” she says.

Connect and Learn More

☑️ Nancy McCullough | LinkedIn

☑️ e2E | LinkedIn

☑️ McGuireWoods | LinkedIn | Facebook | Instagram |  X

☑️ Subscribe Apple Podcasts | Spotify | Amazon Music

This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.

You're listening to Deal-by-Deal, a McGuireWoods podcast. Deal-by-Deal invites you to conversations with experienced independent sponsors and other private equity professionals. Join McGuireWoods' partners, Greg Hawver and Jeff Brooker, as they explore middle-market private equity M&A to provide you with timely insights and relevant takeaways.

Hello, and welcome back to Deal-by-Deal, a podcast for independent sponsors and other investors in the middle market. My name's Greg Hawver. I'm a partner at McGuireWoods, and today I'm happy to be diving into the first 100 days post-acquisition. This is after a sponsor has acquired a company. Typically, this is when the M&A lawyers, like myself, take a step back and take a breather, and we let the business people, the finance people, dive in. I'm excited to be joined by Nancy McCullough of e2E, based in Kansas City, which is my hometown, who focuses on outsource CFO, controller, accounting, and other matters.

And Nancy, why don't I let you tell us a little bit about yourself and your practice in more detail?

Formed e2E about 13 years ago. We just have a real passion for small to mid-size businesses who have need for expertise in finance and HR. We work with a lot of companies that are either recently acquired, sometimes startups, sometimes even mature companies, and we really get in and help them professionalize their finance and HR functions. A lot of really great expertise in our organization, helping companies on their path from entrepreneur to enterprise.

Great. Great. Why don't we just start with our theme and sort of post acquisition? When you're working with a client who is a private equity funder and independent sponsor, and you walk in the door of the business, tell me about when you engage with that PE firm and what you first see when you walk in the door of a post-acquisition.

Typically, post acquisition when we're walking in the door looking for and trying to get a handle on the state of their kind of financial function and processes, the state of the financial statement, there's usually a fair amount of cleanup and optimization that can be done, creating efficiencies, looking at controls, process flows, and really even kind of normalizing the financial statements. We work closely with understanding even what the QoV providers have put together, analyzing that, and then starting to put in some structure. Sometimes there's really great structure. Sometimes not. We're looking at systems and everything and how those are integrated or not. And we typically have a list of projects when we're coming in the door that involve sometimes implementing new systems, integrating those, cleaning up or restructuring the chart of accounts so that we can get to reporting that is useful, especially for investors.

We want to help them kind of build out cashflow, KPI dashboards, reporting packages for investors, but potentially even lenders. We're really just doing a great kind of assessment overall and figuring out where can we leverage and create a lot of really great information and support to really establish a great foundation for them.

Got it. For us non-accounting folks, what is the most common state of affairs with an accounting system in a lower middle market company that's problematic? And then what is the latest state of the art as far as accounting systems for lower middle market companies?

Lower middle market, the companies we typically are working with, large majority are using QuickBooks Online. Sometimes we find folks on Sage or NetSuite, but majority are using QuickBooks. QuickBooks Online can extend pretty far. And when we get in, often what we see is they've been using QuickBooks, but they haven't set up a great chart of accounts. Maybe they've used the accounting, coding, whatever, inconsistently year over year. And sometimes even their balance sheets are not particularly accurate. They're maybe somewhere between cash and accrual but not necessarily full accrual or full gap. We spend time working on getting that cleared up, straightened out.

We also find that they're doing a lot of stuff very manually. The way they process payments. The way they're handling vendor information and invoices that come from vendors. Even the way sometimes they're invoicing or capturing revenue from customers. There's opportunities. We use some other great products. Another one's called Ramp, and that is on the credit card expense reporting vendor management. We can get them to implement that. It brings a lot of controls, great workflows, great integration with QuickBooks, creates a lot of efficiencies and gathering information, gets sometimes, a lot of times, the CEO or the founder out of the day to day and into more of a ... A lot of owners spend a lot of time chasing stuff down to get the accounting done, and this really streamlines all of that.

Those are opportunities we're looking for when we get involved, including payroll systems. What are they using? Is it integrating with QuickBooks? We have a couple of favorites on the payroll system side, too, to really create a nice suite of systems that work well together and can be highly integrated at a pretty low cost for those small to mid-market companies.

Got it. And how do you think about the division of labor between consulting firm like e2E? You've got likely a QofE firm that's come in and analyze the books in connection with the acquisition together with a CFO and also the sponsor who's acquiring the company.

How do you manage passing the baton among that group?

Typically, when we're working with the company, we kind of fill the role of the full finance function. Often, we are not only the bookkeeping staff but the controller function as well as the CFO function. We're really kind of working end-to-end tactical to strategic with those companies. We have an HR offering. Often, we are running the payroll and plugging in as their chief human resource officer and providing support on the full HR operations for the company. Is that kind of what you're after there in that question?

No, that is super helpful. And I guess the other piece of the equation is the buyers of these companies are probably digging into the books in some respects when they're coming up with the valuation of the company.

Do you help them with that valuation, or do you kind of get the baton passed to you from someone else? How does that work?

We can often help with that. Sometimes they bring us in while they are evaluating the purchase, and we'll get involved in helping through that process and sometimes cleaning up those books so that we can get to a good information for a QofE or for valuation. But typically that's done a little bit offline, maybe not directly in the system. And then if they purchase, if the purchase goes through, then we get involved in kind of taking the way we've structured that data to help them understand valuation, strength of the company, all of that, and getting that then into the actual bookkeeping system, general ledger, so that we can take that forward and then be reporting back on things that are important to the buyer, the investor, the bank.

Got it. Super helpful. When you're working with clients in the first 100 days post acquisition, what are some new trends or new tools that you offer that really provide the most value as far as increasing the value and efficiency of the company? You mentioned KPIs, developing dashboards. What are some tools like that?

I kind of mentioned this is a little more on the accounting side, but then it kind of leads into the reporting. We love kind of a preferred tech stack that we think is really optimal for companies in that small to middle market. And that's QuickBooks Online, Ramp for the vendor management expense, and then Gusto for payroll. Revenue side can be a little bit different. Depends on the industry. Those three things together, and then we use a reporting package called Fathom. Fathom helps us pull all that information from those data sources, bring it together, and develop a KPI dashboard as well as routine financials. All of that creates a ton of efficiency because the information's just flowing through the system from that point of entry where we've created a lot of efficiencies even in capturing that data to get it in to the system so we can report on it because, obviously, if you don't get great data on the front end, it's really hard or time-consuming to report out effectively on the back end.

Then we're looking at the industry, trying to understand what are the right KPIs, what metrics should we be tracking and understanding, and then we use that. We kind of call this path to profitability. We like to take those KPIs, metrics, understand that, and then build out forward-looking forecasting, multi-year projections, that are driven off those metrics so that we're tracking actual metrics and then assumptions about metrics so that we can see if they're aligning. When they're not, we update those in forecast models to see what's the impact on the business if we're not achieving those target metrics. Those are things we dig into in those first 100 days post close.

Nice. And you mentioned you're working with small to medium-size business. How do you think about that from a dollar perspective, maybe EBITDA, or what's a dollar range we can think about?

We typically think of it a little more revenue and employee more so than even EBITDA because hopefully that's part of the goal, is to improve and increase EBITDA. When we're working with companies, they're probably somewhere in the ... Could be even pre-revenue. Sometimes we work with startups, but probably we're topping out revenue. It can depend. 80 to 100 million in revenue. Employee size, they're typically 200 and under that we're working with. If we're providing full, if we're the entire finance HR function, they're probably a little bit on the smaller side. Maybe 100, 150 employees. Revenue can vary so much so. We've got companies we work with that are 80 and 100 million, but they may have a lot of pass-through costs, that type of thing, that elevates that revenue level, if that makes sense.

No, that makes sense. I just showed my cards as an M&A deal lawyer because we always just think in terms of EBITDA and purchase price and things like that, but you're in there to increase the EBITDA by making the company more efficient.

Right. And really, our sweet spot is those size companies where it doesn't make economic sense for them to have either full-time finance, accounting, HR staff, or maybe some full-time accounting and HR staff, but certainly they don't need that full-time CFO or CHRO. That's where we can plug in in a fractional way and bring a ton of value for less cost than those full-time roles because a really solid CFO salary can be up in the 200, 250 range. For certain size companies, we want them to have access to that level of expertise, support, without having to carry that cost. That's where we can really bring some great value.

And talk to me a little bit more about what the decision points are. There's the acquisition, and there's the first 100 days where the e2E team is getting in there and getting all these processes set up. How do owners think about the next six months or year? At what point do you bring in a CFO, if ever? How do people think about the next couple of years?

We love to work alongside them and help them build out that team as it makes sense. Usually, the first thing we see, the first full-time role that's really needed, it tends to be that bookkeeper, data-entry role in the finance function because that's very volume driven. Roles that are helping with month-end close. Financial analysis. Reporting. That CFO support around strategic planning. A lot of those, it takes quite a bit longer before you really have, in my opinion, a full-time need for that. We like to walk alongside our clients. We're in it for a long-term partnership, but we also are very willing to work ourselves out of a job. If we're doing well with the company, we are helping them grow, and eventually they would outgrow our services and have a need for all of these roles full-time, but that can happen over a short period of time, depending on the company and the industry and their growth trajectory, or a long time.

We've got clients we've been working with for 10 years. We've helped them build out now, really, kind of a full finance HR team except for those key CFO CHRO roles, which we're still involved with them 10 years down the road here when they're $80 million, and we're still providing that strategic support on a fractional basis.

Right. Right. Right. It just seems like I hear from my clients often that they're charging hard to get a deal closed, juggling all the different constituents and due diligence on litigation and things like that, and then, again, once they close the deal, their work really begins. Mine kind of ends. And it's great to see the resources they have and some of the options.

I guess before we close out, one other interesting aspect that I think is relevant for this podcast, Nancy ... For our listener's benefit, e2E was acquired in recent years by Courtside Equity, a Chicago-based independent sponsor whom I'm relatively connected with. And maybe just tell us how that journey has been since maybe just leading up to that and then afterwards.

I'd be happy to. I mentioned that I founded e2E about 13 years ago. We have been on a really great growth path ourselves. In those 13 years, we've grown at a compound annual growth rate of 30%, all through 100% through referrals, client referrals, partner referrals, but saw a great opportunity. There's a lot of need in the market for what we do, but we had never really gone after intentional selling, outbound kind of selling, and I've never grown a company at all. This was my first run at forming a company, and I really felt like I need some serious help and support in taking this to the next level.

Met the Courtside folks. We're going on just about our one-year anniversary of the investment. It's been outstanding. They bring tremendous resources to the table, have really been helping us get intentional about a sales and marketing go to-market strategy, and how we're really looking at building the next level. We're on our own journey of entrepreneur to enterprise. It's been a lot of fun. They're highly connected. Like I said, bring a lot of great resources to the table.

It's interesting because I think private equity sometimes gets a bad rap about what happens once they get into a company. And I've had a lot of people ask, "Hey, how's that going for you?", expecting maybe me to say, "It's not what I thought it was going to be," but I couldn't be more thrilled." It's really been a tremendous asset to have these folks involved. And it was fun going through due diligence, just having done that many times for other companies, to be in on it myself and doing it for this company. But valuation, the whole process, the closing, and then what we've been doing in the last year, really diving into all areas of the business and looking for ways to kind of improve and put ourselves on a great growth path.

That's awesome. I just think that's a really great story. I'm glad to see all points in the ecosystem represented here, and hopefully this has been helpful for our independent sponsor and other private equity listeners. And you can reach out to Nancy and support Courtside and everyone.

Nancy, can you just tell listeners where they could find you to learn more?

Yes. If you'd like to learn more about what we do at e2E, you can find us on the web at e2ekc.com. We'd love to visit with you.

Great. All right, Nancy, we really, really appreciate your time. Thanks very much.

Thank you.

Thank you for joining us on this episode of Deal-by-Deal, a McGuireWoods podcast. To learn more about today's discussion and our commitment to the independent sponsor community, please visit our website at mcguirewoods.com. We look forward to hearing from you.

This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods.

This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.