Company Profile: PMC – Unearthing hidden treasury: Since its establishment ten years ago, PMC has sought to fill a gap in specia

With a background in the money markets, having worked on the corporate treasury desk at a money broking company for 15 years, it was natural enough that Michael Pearce should be the first to spot an opportunity for providing corporate treasury services to the private equity market in 1989.

Pearce had just completed an MBA at the time and was looking to take on a new challenge. This arose when he set up Pearce Management Consultants (PMC), a UK-based treasury consultancy business. The private equity market was at the height of its late 1980s boom, though ironically just about to take a dive as recession bit.

He describes the market for the first few years of PMC’s existence as very testing’.

However, it managed to achieve a strategic coup by winning Cinven as a client – one of the largest and most high-profile of Europe’s private equity firms. It wasn’t long before this relationship was reaping dividends as Cinven recommended the firm to some of its peers in the market place. “The thing I love about the venture capital industry is that while these people fight like cat and dog over a piece of business, having won it their approach becomes very collegiate.” From winning Cinven’s vote of approval, PMC has subsequently worked on deals with firms such as 3i, Apax Partners, Charterhouse Development Capital and PPM Ventures. Whereas, in the early days, PMC advised on a variety of situations such as venture capital financings, acquisitions, company disposals, overseas buying or supplying and changes in senior personnel, it now gains around 80 per cent of its work from the private equity market alone.

The firm’s most lucrative mandate so far was on behalf of Cinven on the GBP1.3 billion ($2.1 billion) buyout of Avecia, the specialty chemicals arm of Astra-Zeneca (see box). In Pearce’s words the firm had very good financial staff but not much in the way of treasury skills’. PMC was employed to look at foreign exchange issues, as the firm had operations all over the world. It also set up an ongoing treasury plan for the future.

The firm has also worked on some other well known deals including Corgi Classics; Addis Housewares; Avon Rubber; Coral Racing; Gardner Merchant; Principal Hotels; Sunsail; Tetley Tea; and William Hill.

Surprisingly perhaps, Pearce acknowledges that his firm’s role in a major buyout is not of paramount importance. “What we do is not a deal maker or breaker. We are part of the management process – our job is not to decide whether the deal goes forward or not, it is to make sure that the board understands the treasury issues.” Pearce is keen to stress that this is not just foreign exchange management, as some might think, but also involves ensuring that the sales force understand how possible fluctuations in exchange rates will impact the price at which they buy or sell goods.

While PMC will work with buyout firms which have turnover as little as GBP10 million ($16 million), it is more likely to find itself advising on larger deals. This is despite Pearce’s claim that the firm can add value across the spectrum in terms of deal size: “Even if the deal only involves the provision of GBP5 million ($8.2 million) of debt, a one per cent move in interest rates would make a difference of GBP50,000 ($82,000), and that’s serious money.” His claim carries some resonance given that the firm charges anything between GBP5,000 ($8,200) and GBP25,000 ($41,000) per deal for its services.

However, as Pearce freely admits, a UK service company with its operations solely in its domestic territory will be much less likely to benefit from the company’s services than one which is international and has currency risk to contend with.

Despite the difficulties of the market soon after PMC was established, Pearce claims it was not long before the firm was knocking on an open door’. Since then, it has benefited from the continued growth of private equity in the UK as well as following its UK-based clients onto the Continent. While numbers of deals have remained fairly constant in recent years, the average value of those deals has increased enormously. This has enabled PMC itself to grow. Since its establishment, Pearce has been joined by Lucilla Herrmann, Michael Hacon, Adrian Buckley and Michael Warren.

Pearce claims that the firm has now become an established player in the buyout process, a claim apparently substantiated by the firm now mandated to advise on an average of four to five transactions per month. “We’ve been doing this for last ten years, and for the most part – touch wood – people now feel comfortable with us.”

Case study: Avecia

The GBP1.3 billion ($2.1 billion) buyout of Avecia (formerly Zeneca Specialty Chemicals) from Astra-Zeneca in July 1999, represented one of the largest buyouts in Europe in recent years as well as one of the largest deals in the chemicals sector.

A concern for the bought out division was how to replace a number of services provided by the parent company. Avecia’s new independence increased its focus on cash, and treasury management assumed a new importance. While the company had an experienced finance director and a finance team equipped to deal with the workload of the deal and day-to-day operational treasury tasks, they did not have experience of the many of the issues they had to tackle. To give Avecia the treasury skills it was lacking, Cinven (the equity leader on the deal) brought in PMC.

PMC assisted Avecia in defining a treasury strategy for the business. The main issues were identified as follows:

*Getting the best mix of currency debt given assets and earnings.

*Protecting the group from adverse movements in interest rates in those currencies.

*Setting up an adequate functioning treasury department at short notice.

*Simplifying repatriation of cash from the many international operations.

*Managing the payment requirements of the multi-currency supplier base.

*Long and short-term investment of cash, in line with the business’s needs.

*Building accurate forecasting of cash flows in both sterling and foreign currency.

*Ensuring treasury policies appropriate to the circumstances were put into written form for board approval.

*Attending to control issues around dealing/payments.

PMC supplied a treasury consultant with many years senior experience on site through the summer period. This allowed Avecia time to assess its resourcing needs, and PMC currently has a watching brief for the business while a new treasurer is being recruited.

PMC and treasury consultancy: The background.

The success of PMC in obtaining advisory mandates depends on the amount of pressure on senior management when undertaking a major financial restructuring such as a management buyout or company disposal. In theory, it is a time when the volume of work multiplies, creating pressure points in areas unrelated to the restructuring objective and requiring important financial decisions to be made about issues not considered before in the course of running the business.

Frequently the process raises matters outside the experience of the management team, which is asked to deal with them with little or no help. In addition, during the timescale of the deal – which may be several months – management’s time may be deflected from the underlying business. In order to create a sound financial footing going forward, the business may need to call upon specialists such as those with corporate treasury skills to provide access to individuals who have seen the same financial issues before in broadly similar contexts.

PMC provides corporate treasury advice to companies of all sizes and in all sectors and has completed over 400 projects over its ten-year history for companies with an annual turnover of between GBP30 million ($49 million) and GBP500 million ($820 million).

PMC has worked with a number of UK-based private equity houses including 3i, Apax Partners, Charterhouse Development Capital, Cinven and Prudential Venture Managers. Its role ranges from back-up when the finance director is being confronted with due diligence issues, through to completion and beyond, and providing support for issues such as cash management, foreign exchange management and banking relationships.