Gary McGaghey: The Finance Questions That Matter in a Listed Company Take-Private

A listed company take-private attracts attention because the visible elements are easy to understand. There is a public share price, an offer premium and, eventually, a shareholder vote or acceptance threshold.

Behind those headline numbers sits a far more complicated financial exercise. The buyer must form a detailed view of the business using information that is partly public, partly available through diligence and partly dependent on management forecasts. At the same time, it must arrange financing, satisfy regulatory requirements and maintain enough flexibility to manage changes in trading before the transaction completes.

Gary McGaghey sees the finance leader’s role as extending well beyond valuation. The CFO must understand whether the proposed capital structure can tolerate underperformance, whether the investment plan is supported by cash and whether the organisation will be ready to operate under private ownership from the first day after completion.

The offer price may dominate the public discussion, but it is only one part of the decision.

Start with the full cost of ownership

Public-company transactions are often described in terms of the premium to the unaffected share price. That is understandable from a shareholder perspective, but the premium does not tell the buyer whether the acquisition creates an acceptable return.

The finance team needs to move from equity value to the full enterprise cost of the transaction. Net debt is part of that bridge, although it is rarely the whole story.

Pension obligations, lease liabilities, tax exposures, provisions, deferred consideration and other debt-like items can all affect the eventual funding requirement. The buyer also needs to consider transaction costs, refinancing fees, management incentives and the liquidity that must remain available after completion.

Restricted cash or cash trapped in particular jurisdictions may not be fully available to support the acquisition. Equally, a business that appears cash rich at the reporting date may need much of that balance to fund payroll, supplier payments or seasonal working capital.

These adjustments can materially change the economics without altering the public offer price by a single penny.

McGaghey believes the finance team should also challenge what the market price actually represents. A weak share price may indicate an undervalued company, but it can equally reflect concerns about execution, industry conditions or the credibility of management’s plan.

The buyer should understand why its view differs from the market’s. Simply believing that private ownership will allow management to think longer term is not enough. The investment thesis needs to identify the specific changes that new ownership can deliver and how those changes will convert into cash.

That requires separating different sources of value. Some improvements may be relatively controllable, such as refinancing, cost and revenue synergies, procurement savings or removing costs associated with maintaining a listing. Others depend on customer demand, pricing, operational delivery or future market conditions.

Combining all of these into one synergy figure creates false confidence. A better model distinguishes between value already present in the business, value the owner can directly influence and value that remains dependent on external events.

Public information is useful, but it is not full diligence

A listed company provides more financial information than most privately owned targets. Annual reports, trading updates and market announcements offer a substantial starting point. That availability can sometimes encourage buyers to assume they understand the business more fully than they do.

Public reporting is designed for investors, not for the detailed underwriting of an acquisition. Segment disclosures may not show contract-level economics. Capital expenditure may be reported in aggregate. Working capital movements can be explained at group level without revealing the operating patterns beneath them.

Management forecasts also need careful interpretation. A forecast prepared for internal planning may contain assumptions that are not directly comparable with public guidance or analyst expectations. The buyer must reconcile those different views rather than selecting whichever version best supports the transaction.

Gary McGaghey considers this reconciliation one of the most important pieces of work in a take-private. The investment committee, lenders and advisers should all understand how the buyer has moved from reported performance to its base case.

That bridge might include current trading, foreign exchange, acquisitions, disposals, accounting changes, cost and revenue synergies and management initiatives. It should also show which adjustments are supported by completed actions and which rely on future execution.

Revenue quality is another area where headline reporting may conceal important differences. Recurring revenue, long-term contracts and customer retention can support a stronger valuation, but only when the underlying terms justify that conclusion.

A multi-year contract is not automatically low risk. It may contain break clauses, pricing restrictions or service obligations that make future margins uncertain. Likewise, a high customer retention rate may be less reassuring if renewal requires material price concessions or additional investment.

Cash conversion deserves particular scrutiny because debt capacity is ultimately supported by cash rather than accounting profit. The buyer should examine the timing of customer receipts, supplier payments, tax, pensions and capital expenditure across the year.

A model based solely on historic annual cash conversion may miss substantial intra-year funding pressure. That becomes more significant when acquisition debt introduces regular interest payments and tighter control over liquidity.

Financing and diligence must develop together

In many acquisitions, diligence is substantially completed before the final financing structure is agreed. A public take-private does not always allow such a comfortable sequence.

The transaction timetable, disclosure requirements and need for funding certainty mean that lenders and investment committees may need to make decisions while some questions are still being answered. Finance therefore has to identify which issues could genuinely change value, leverage or willingness to proceed.

The debt model should be treated as more than a funding schedule. It needs to reflect the way the business actually generates and uses cash.

Interest costs, amortisation, covenant headroom and minimum liquidity should be tested against a range of trading outcomes. Sensitivities should not be confined to a small reduction in EBITDA. Delayed customer payments, higher capital expenditure, restructuring costs and slower delivery of operational improvements can create pressure even when the income statement remains broadly on plan.

A model that works only when every assumption is achieved is not a robust financing plan. There should be enough headroom to manage ordinary volatility as well as known implementation risks.

McGaghey’s approach is to examine combinations of adverse events rather than testing each variable in isolation. A modest earnings miss may be manageable. So might a delay in a planned disposal. If both happen alongside higher interest costs, the outcome can look very different.

This is where the CFO acts as the connection point between workstreams. A diligence finding may affect the offer price, debt quantum or purchase agreement. A regulatory delay can increase financing costs and extend the period during which the target’s trading may change. A revised forecast can alter lender appetite or require more equity.

The information needs to move quickly between advisers, but decisions should remain controlled. Transaction processes can generate large volumes of analysis, and not every new data point deserves to change the model.

A clear materiality framework helps distinguish genuine investment issues from the normal noise of diligence. It also prevents the senior team from spending disproportionate time on matters that do not affect value or risk.

Private ownership requires a different operating rhythm

Completion is often treated as the finish line because it marks the end of the public transaction process. From an ownership perspective, it is the point at which the original investment case begins to be tested.

The company will need a governance and reporting structure suited to its new ownership. Public reporting obligations may reduce, but the demand for detailed internal information often increases.

New owners and lenders are likely to expect timely reporting on cash, leverage, covenant headroom and progress against the value creation plan. Monthly management information may need to become more operationally detailed, particularly where the investment thesis depends on changes in pricing, procurement, synergy delivery, productivity or customer retention.

This can be an adjustment for the finance team. A listed company may already have strong controls and external reporting capabilities, but those processes do not automatically provide the information required by a highly engaged private owner.

The new reporting model should be designed before completion. It needs clear definitions, named data owners and a realistic production timetable. Asking for a new suite of reports immediately after the transaction, without checking whether the underlying systems can produce them, creates unnecessary disruption.

Governance also needs to be settled early. Management should understand which decisions remain within its authority, which require board approval and how investment proposals will be assessed. This is an area where the acquired business can be “liberated” from governance not required outside a publicly listed business environment. However, this needs to be robustly thought through before removing governance processes. Rigour and control remain key pillars of success in private ownership, particularly where higher debt leverage is introduced.

The first phase of the value creation plan should be similarly practical. It is common for a transaction model to contain numerous initiatives, each of which appears manageable on its own. The problem is that many of them depend on the same small group of senior people.

A management team cannot simultaneously complete a refinancing, redesign reporting, implement a new operating model and pursue several strategic projects without affecting normal business performance. Sequencing matters, as does providing additional support where the organisation lacks capacity.

Employees also need a clear explanation of what the change in ownership means. A take-private can generate speculation long before the buyer is able to communicate fully. By completion, uncertainty may already have affected retention or decision-making.

The finance leader will not own the entire communication process, but should ensure that financial targets and cost plans are described accurately. Overstating immediate savings or presenting tentative initiatives as settled decisions can damage trust and make implementation harder.

A completed deal is not necessarily a successful deal

A take-private can be executed correctly from a legal and financing perspective and still struggle under ownership. The offer may complete, the shares may be delisted and the acquisition debt may be drawn exactly as planned. None of that guarantees that the business will deliver the expected return.

The real test is whether the company can convert its strategy into cash while carrying the new capital structure. That depends on the quality of the original analysis, the realism of the value creation plan and the organisation’s ability to implement change without losing control of day-to-day performance.

For Gary McGaghey, the strongest finance leaders maintain continuity between the transaction case and the ownership case. The figures used to approve the acquisition should not disappear into an archived deal model after completion. They should become the starting point for budgets, management reporting and accountability.

A listed company take-private is therefore not simply an exercise in agreeing the right price. It is a decision about how the business will be financed, governed and managed for several years after the market stops watching it.

That is why the most important finance work often receives the least public attention. It happens in the downside cases, liquidity forecasts and operational assumptions that determine whether the acquisition still makes sense when reality is less cooperative than the original model.