What d'ya think you're doing?

Welcome to the newsletter, which opens with a confession: I don’t write this all on my own. The best thing about this job is getting out and about, meeting all sorts of people – finance execs, board members, investors, HR folk – and working out how to match-make for the best results.

That means I don’t have much time to write (especially when things are busy – more on that in a bit). So while my experiences, conversations, and reading of the business world direct this newsletter, I do have help in getting the words down.

I mention this is because the best CFOs I know – ones who are both successful and happy – know what they don’t know. Then they recruit to cover the gaps. Trying to shoulder everything as a finance leader is dangerous – especially when stuff gets shoved on your plate by others who should know better. Delegating isn’t slack. Consciously seeking out expertise in the areas you’re uncomfortable with is the best governance of all.

It’s especially important right now. As we explore below, the ‘R’ word (yes, recession) is still on people’s mind – and when those people are the Governor of the Bank of England we take note. But I’m also seeing lots of the M&A folks who headed out to the US looking for deals coming back again as things start to churn here at home. We’re already working with several PE houses to find both CFOs (because investors know the right finance leader can rev things up) and specialists to fill out capabilities for CFOs who know what they’re (not) good at.

The moral? Don’t get sold a story by a recruiter, a CEO or a chair. It’s the people, processes, systems and attitude inside a business that count. And as CFO, you’ll be picking up the pieces when things aren’t working. That’s not to say you can’t fix that kind of business. You just need to be able to see what’s needed, find expertise to develop solutions, and then present them to the board in a way that allows you to judge their appetite for a fix.

Give them a solution, gauge the reaction, then decide whether to stick with it. And if they expect you to cover off every angle all by yourself? What the hell are you doing?!

- Ray Nicholls

Things to do...

Make it stand out

***Now...***
**Holiday plans.** Term finishes late for lots of schools this Christmas, and the festive bank holidays are creating two long weekends. That poses questions around holiday use and office opening. How might that hit cashflow and staffing levels? And when are you off?

***Next...***
**Ready for reporting?** The FRC’s planned changes for 2024 (mostly *ESG oversight and reporting*) have been *scrapped*. You might still want to gather relevant data (investors *like it*), but the new Code in January won’t be as onerous...

***Later...***
***Back to basics?*** *EY’s* *Private Equity Pulse* for Q3 shows the finance team is key right now. Static markets, financing costs, and uncertainty mean cash, working capital and treasury efficiency are PE’s three big priorities. Get ahead of the curve.

Lies, damned lies, and...

Public or Private? Only one way to find out

The London Stock Exchange continues to plead “why won’t you love me!?” to companies big and small. (Listings are down, I’m seeing a lot of chatter about public-to-private deals, and precious little about floating.) But two data points from over The Pond contain lessons about the perils of public markets.

First, while the S&P 500 is up 15% this year, investing in the ‘meme stock’ ETF – it invests in companies that idiots on social media trade heavily – returns a handsome 18% (see above). OK, so Apple is up 42% YTD (even with a lacklustre new iPhone out). But when the interweb's chattering classes are outpacing the index, you know the public markets are a bit funky. (This is an old theory, of course. Even Guinness World Record has an entry of Wall Street's most successful chimp...)

But wait… That Meme ETF leaves out one of the most ‘meme’ stocks of the year… Chip-maker Nvidia, which is up a whopping 233% (see below)! Conclusion? If your company is too boring and sensible to get a p/e ratio of 117x – best stick to being private.

M&A: hotspots and not-spots

Meanwhile, Lexis Nexis’s analysis of H1 2023 M&A in the public markets is out, and it’s a mixed bag. ‘Firm offers’ are about where they were last year, but deal value is well down (to £12.2bn, from £22.2bn in H2 2022). But the big news is public-to-private activity is soaring – representing 76% of all firm offers, compared to just a third of them in H1 2022. The P2P deals tend to be smaller this year – and perhaps more strategic?

Addleshaw Goddard partner Simon Wood reckons H2 could be boosted by further woes for the public markets as the FCA wants tighter regulation for AIM listings. So PE buyers or big fish in your sector might be a better exit than a 'lightweight' listing. And, the report adds, think about how you can accept more interesting funding structures. Cost of finance remains a brake on deal-doing.

The good news? Weaker PE activity this year could presage a better 2024 as sentiment for fundraising turns and market-watchers see exit preparations gear up.

Crystal ball: 'R' word fatigue

“Recession watch” is a tired old trope. But it’s the job of finance execs to play Cassandra (the Trojan princess cursed to see the future and never be believed) and if the worst that people can say at the next board meeting is that you’re a doom-monger, is that so bad? Anecdotally, here at Pitch Hill Partners we’re seeing a lot of appointments to fix ‘issues’ with businesses that are creaking. Just this month, we placed an emergency ops director to fix a seasonal problem – in a business that can’t wait for the supply chain to fix itself.

More generally, there’s just too much data sloshing around that looks like 2007 for us to feel comfortable. (And let's face it, none of us want a repeat of 2008 - 2011.)

It was autumn that year that those ‘In The Know’ started talking about a credit crunch despite a bull market and buoyant consumer and business spending. A whole year later Lehman Bros. collapsed. And when the Bank of England is saying there’s a 50-50 chance of recession by the middle of next year, the fact it’s also warning about rates staying put (or even rising) is worrying. Add in stagnant housing as mortgage demand freezes, weak lending to business (especially SMEs), and ongoing uncertainty, and we’d be crazy not to have a plan in place if things get a bit funky next year. The good news? When the going gets tough, the tough hire smart finance execs. And the noises from the US are still predicting a soft landing (or even more benign outcomes), even if here in the UK, we're facing warnings of an anaemic couple of year (if you can't read it, that table from Goldman Sachs shows sub-1% GDP growth for the UK. Eek.)

Words from the wise: Fraud is so much easier without a CFO

Billionaire-to-jail crypto genius Sam Bankman-Fried (SBF - that’s not him pictured, but the generative AI thinks it is... our jobs are safe for a while longer) has been found guilty of misusing client money on his crypto exchange FTX. Legendary journalist Michael Lewis (who wrote The Big Short, Moneyball, and Liar’s Poker – all great reads for FDs) shadowed the mercurial geek for 18 months and watched the fall from grace – as documented in his new tome, Going Infinite. He’s been slammed for being “in the tank” for SBF and missing obvious failings of governance (or outright recklessness). But, we wondered, what does he have to say about FTX’s financial leadership?

Kindle tells us there are a grand total of four mentions of “CFO” – three occurring in just one paragraph: “For the past eighteen months, various venture capitalists whom Sam had permitted to invest in FTX had been telling him that he should hire a serious grown-up to act as the company’s chief financial officer. ‘There’s a functional religion around the CFO,’ said Sam. ‘I’ll ask them, “Why do I need one?” Some people cannot articulate a single thing the CFO is supposed to do. They’ll say ‘keep track of the money,’ or ‘make projections.’ I’m like, What the f*** do you think I do all day? You think I don’t know how much money we have?’.”

Ironically, of course, SBF lost track of the money at least twice by his own admission, the second time bringing down both FTX and his investment fund Alameda Research. Maybe there’s a value in having a grown-up CFO in the building….