Successful exit strategy executed for medical device manufacturer

Case StudyBackground:

A medical device company that has developed a specialised product was having difficulty penetrating a market which was heavily regulated and already dominated by major manufacturers with years of experience and large market shares. The company had to prove, not only to the regulators, but also to the competition, on how their product complimented current methods. The aim was for the product to become the standard of care in the industry.

Challenge:

The challenge is was to support the ambitions of the founder directors and to build a finance function, with adequate controls. The starting point was to determine where the company currently is and where it sees itself in a few years. The end point was to determine an exit strategy for the angel investors and shareholders.

Solution:

My approach to this was piecemeal, tackling a huge project in carefully determined steps over a number of years. This meant that for the first few years, I was “wearing” several hats during the working week, taking care of the HR function, overseeing the Finance function and the Operations Management function.

We produced 3 year budgets and forecasts which were tied into sales targets and R&D work. I went onto producing timely MI packs for the board, which was the first stage of the process. The MI packs also helped identify variances and cashflow projections.

As the company grew, we introduced more policies and procedures to consider the additional activities, such as employee expense policies, employee handbooks etc. We also reviewed the entire employee benefits package and made it better for employees by introducing newer benefits and more cost effective for the company by renegotiating rates and combining individual policies into corporate policies.

A HR function was established once the company had reached critical mass and this made the recruitment and retention of staff much easier. It also meant that I could focus more on the finances and the budgetary work.

The company had grown from occupying 200sq ft in serviced offices to having several offices worldwide and with an international employee base.

During the first move, I worked with the CEO in negotiating the rents and service charges for the office. I then worked with the CEO in designing the office fit out, getting involved with the procurement of desks, IT equipment, telephony etc. Working with the R&D Director, we designed specialist testing units and labs. As the company outgrew this, I negotiated more office space in the block.

There was a dormant company that the directors had registered in US. I got it re-activated and we started using this as a base for our US based employees. I set up payroll and HR policies (by state), bank accounts and established a transfer pricing model for this company to sell in the US. This effectively allowed the company to sell in US, a major market for the product.

As the company started growing into newer territories, I used the same model as the US one and registered in these regions for payroll, sales activities etc.

As the company was growing quite rapidly, the board of directors started the process of achieving a successful exit strategy for the angel investors and shareholders.

A senior FD was hired to undertake as this as I had no experience nor the bandwidth to do this.

However, it turned out that I was the main liaison with PWC in producing the FDD documentations and keeping the data vaults updated with analysis and reports.

Benefits:

Cashflow was key in achieving these targets and the effect was that key decisions on expansion were sometimes deferred so as not to go into the red.

Aged debtors dropped such that 60 days and over debt was less than 5% of the overall debt.

My position became redundant after successfully being acquired by another organisation, thereby fulfilling the founder director’s wish on an exit strategy. Upon my departure, the CEO invited me back for an informal award.

EFM Expert: Hitesh Purohit