Guiding a Cloud Services Firm to Clarity and a Successful Exit

When this cloud services firm came to G-Squared Partners, they were in a state of flux. The company’s CFO had just left, their financial record keeping had fallen behind, and there was a major disagreement over how much the company owed its principal vendor. 

Compounding matters further, shortly after the company retained G-Squared Partners, its bank rescinded the company’s line of credit, causing significant cash flow challenges. Next came the COVID-19 pandemic, plus conflict among the board, and an audit that could not be completed until the books were cleaned up. 

This company had no shortage of challenges to seek. But just eighteen months later, with the support of G-Squared Partners, the business had been successfully sold to a strategic acquirer. G-Squared Partners played a vital role in this process, helping the company to turn around its fortunes, clean up its books, and successfully navigate a demanding transaction.

It was an engagement that demonstrated the full range of our services at G-Squared Partners: from accounting and bookkeeping solutions to high-level CFO advisory services that helped the company navigate its toughest challenges. 

Stemming the Flow: Turnaround Management

G-Squared Partners was first hired after the departure of the company’s CFO. Upon onboarding the business, we discovered several major issues. 

The company had failed to appropriately maintain its books and financial records, and as a result, were often making decisions based on incomplete, outdated information. Perhaps even more concerning was a multi-million dollar dispute with the company’s principal vendor: a major technology company. 

G-Squared Partners immediately set to work analyzing historical financial records to determine how much the vendor was owed. Our team went toe-to-toe with this major technology company, proving to them that our records were a correct accounting of the monies owed, saving our clients millions of dollars. 

As part of this process, G-Squared Partners also improved the company’s financial record keeping, improving managing and board reporting by creating robust accounting processes. This information provided the board with the insights they needed to make important decisions anchored in the financial reality the company faced.

Building Strategic Alignment at the Board Level

While the steps outlined above marked significant wins, the business continued to face major issues. Their bank rescinded the business’s line of credit, causing significant operational and financial challenges. As these cash flow problems worsened, the business continued to decline, losing several key accounts and seeing revenues continuously fall. 

As performance worsened, tensions grew between members of the board and the company’s leadership team. There was a general consensus that the company should be sold. However, due to certain ambiguities in the company’s legal documents, there were major disagreements over how the proceeds of a sale of the company would be divided – a source of great tension.

As an independent advisor with significant experience helping businesses navigate these types of situations, G-Squared Partners was uniquely well-positioned to guide the board through these challenges. Our team built a waterfall analysis that demonstrated how the proceeds would be split and secured buy-in from all factions of the board, enabling the business to move toward an exit.

Strategic Guidance Throughout the Sale Process

The company hired an investment banker to market the business to potential acquirers. However, unlike a traditional investment banking relationship, the support stopped there. G-Squared Partners stepped into the void, acting as the financial quarterback of the transaction, handling all financial matters and coaching in a manner that went far beyond the scope of a typical due diligence process. 

After evaluating several offers that didn’t come to fruition, the company entered due diligence with a strategic acquirer who wanted to buy the company to enter the cloud services market. 

Our team supported many elements of the transaction, from negotiating key financial terms to compiling the accounting schedules required for the due diligence process. G-Squared Partners functioned as the focal point for everything to do with accounting and finance, working with attorneys, auditors, tax professionals, and more. 

After a smooth due diligence process, the transaction closed in just two months, resulting in a satisfactory outcome for all parties.

A Successful Strategic Negotiation

The transaction occurred during the pandemic, with all due diligence and negotiation taking place remotely. 

While the company’s financial situation was far from rosy, the strength of G-Squared Partner’s work in preparing the company for the sale ensured that all parties had a clear understanding of the business’s financial position. This ensured a smooth due diligence and quality of earnings process that gave the buyer the confidence to make the acquisition, even in the face of the financial challenges our client faced.

Our team was proud to ensure that all of the client’s employees were able to keep their jobs during the transition. All of the client’s convertible noteholders were paid off in full and its preferred shareholders recovered around half of their initial investment: a much better outcome than was initially expected given the company’s financial performance. 

After the transaction closed, the acquiring company, recognizing the quality of work and experience that G-Squared Partners had brought to the transaction, continued to use our team as their outsourced CFO.