The Cloud

Merrill Client Becomes Merrill CFO

Veteran technology finance chief Tom Donnelly is broadly eyeing new market opportunities for the financial printer.
David McCannMarch 24, 2016
Merrill Client Becomes Merrill CFO

One option for executives to find new career opportunities is to keep alert for openings at their existing suppliers and service providers. You already know things about the company, you’ve used its products, and it, likewise, knows more about you than it does about most other candidates.

Tom Donnelly

Tom Donnelly

Such was the case for Tom Donnelly, who joined Merrill Corp. as CFO since last September. He used Merrill services as finance chief at an Internet startup called Net Perceptions back in the late 1990s and early 2000s, most notably in connection with taking the company public in 1999. Then, at Digital River, where he was CFO and later president from 2005 to 2013, he employed Merrill’s compliance and M&A services.

Joining Merrill “was a good choice for me,” says Donnelly, who came aboard from marketing analytics and optimization firm OptiMine, where he was CEO. “I knew the company very well for many years, which helped in the transition.”

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Merrill and its competitors are often still referred to as “financial printers,” even though they are now largely technology-driven businesses for which printing hard copies of documents is now a much smaller portion of their business.

Many CFOs are familiar with Merrill’s technology platforms and domain expertise services for financial transactions and reporting. A particular specialty is helping customers in the highly regulated financial services and health-care industries to create and distribute compliant sales, marketing, and other communications in a secure environment.

Any public company, and any private one that has publicly traded debt securities, can use Merrill for meeting SEC disclosure obligations. The firm’s technology and expertise also enable the execution of secondary offerings and other capital transactions.

Merrill additionally offers a secure content-sharing platform that allows people from different organizations — finance executives, bankers, public accountants, and lawyers — to collaborate on documents related to M&A transactions in “virtual data rooms” (VDRs).

Donnelly — who bears no relation to people involved with one of Merrill’s major competitors, RR Donnelley — has worked at technology firms for his entire career. He recently spoke with CFO about the company’s business and growth plans. An edited version of the discussion follows.

Merrill’s VDR technology is among its newer business lines. How does it work?
These are content repositories with workflow and analytics built in. The seller of an asset not only has a secure place where documents aren’t going to be emailed around public Wi-Fi networks, for example, it also allows potential buyers to go in and look around. The seller can see what buyers are there and what documents they’re looking at. That’s of value to the CFO.

To what degree do CFOs themselves actually interact with Merrill’s platforms?
As a CFO myself I knew people at Merrill along the way. But I had people on my staff that were responsible for day-to-day compliance efforts. I expected that they were good at their jobs, so I didn’t want to get in anybody’s way.

On the other hand, escalations with respect to reporting errors and other inaccuracies can be a real problem — for example, a health-care organization sends the wrong consumer data to a household and a news story comes out of it or there’s a mistake in your 10-Q and you get a comment letter from the SEC. These things are risks, and as a CFO I worked with the Merrill team to make sure they didn’t happen.

When it comes to taking a company public or doing a secondary offering, there’s quite a bit of CFO interaction, as the CFO is a primary drafter of the documents. And on the M&A side, CFOs are definitely paying attention to documentation like SEC filings and shareholder communications. The level at which they actually become involved in this process varies according to the size of the company. But I don’t think there are a lot of CFOs who divest assets or buy firms without in some way reviewing the critical documents.

How should responsibility for such due diligence be apportioned among the finance team?
To me, the way to do the CFO job properly is to have your team take care of the solid center, the middle 80% of finance activities, while you focus on the opposing ends of the risk/opportunities scale: the 10% of the business representing major risks and the 10% representing major opportunities.

Does the company still actually print hard copies of documents?
It varies by market. In some parts of the world, like Hong Kong, print is very much [alive], because they’re years behind the SEC and the public exchanges in the United States.

Certainly part of the reason I came here, as a technology guy, is that this market is going digital. Some companies do still print proxies and we also still print things for regulated industries. We have two print plants in the United States and one in Hong Kong. But print is really a form of distribution, and in some markets I think printed distribution is going to last for a long time.

In the press release announcing your hiring, your CEO said you will be working on improving global operating effectiveness, expanding into new markets, and accelerating the launch of new, tech-enabled products and services. Let’s take those one at a time. What are you doing to improve operating effectiveness?
I’m helping drive the move to more centers of global excellence for certain components of our service delivery — for instance, for multi-lingual composition filings, like in Hong Kong, where all financial documents are produced in both simple Chinese and in English.

I’m also engaged on the IT side, given my background, and to a certain extent our R&D side, to move to the cloud. That covers both the enablement of our technology platforms on cloud architectures and the use of third-party clouds, as opposed to operating data centers in every country where we operate, subject to the regulatory environment in some places, like Europe.

And within my own team, I’m moving to change structurally to operating finance and accounting more as a global function and less as regional [functions], such that we have one unified finance organization that works together and more efficiently. That’s commonly referred to as “shared services.”

The second focus area is expanding into new markets. Does that refer to geographical markets or industries?
New market opportunities cut across both. I’ll start with geographies. We’re the market leader in Hong Kong financial transactions. But the VDR space, the M&A data rooms, is pretty new and immature. There’s a lot of opportunity in Southeast Asia; we actually just formed a corporation in Japan, where we had not operated in the past, and we’re looking really hard at how we could operate effectively in the Mainland China market.

Growth areas are going to be for companies raising funds in the high-yield markets plus those trading outside the U.S. exchanges. We’re expanding that with new technology for some of the more local markets, like Germany and the Nordic region, where there isn’t as much quarterly compliance but there are annual reporting requirements.

We also believe there are other use cases outside the ones we offer today, perhaps around the financial markets earlier in a company’s lifecycle, maybe even back to the venture funding. And we’re looking at use cases in contract management in real estate. We don’t have any offerings yet, but we do have blue chip enterprise customers that have adopted our technology for other uses, and that’s a great way to select future markets to target. Another reason I joined here is because I think there’s a lot of headroom for growth with both those vectors.

The third focus area is accelerating the launch of new technology-enabled products and services. What’s your role in product and services development?
t’s mostly from a governance perspective. I’ve been with software companies my whole life, but I’m not an engineer. It’s more a role of support for our chief product officer, who also recently joined.

I also [function as] the accountability department for the investment the company is making in enterprise project management. It’s very unusual for a private company to make the kind of investment in technology that we are, which also appealed to me. But I need to make sure we’re driving the returns on this investment that we said we were going to.

Do you get involved, or anticipate getting involved, in any kind of sales capacity? You were a CFO who used these services, so is it helpful to have you talk to CFOs of companies that Merrill is trying to sell to?
Absolutely, and I already have. I love working deals.

I also got to unlock a personal Rolodex built over many years. Although companies are the buyers of our products, there are many influencers around what we do, including private equity firms, investment banks, and law firms. I have a really good network.

Merrill is an interesting place to be a CFO, because we have many experts whose competence in a particular domain — like data security, M&A, XBRL, and regulated communications by health-care and financial services firms — that go way beyond any individual CFO’s competence. Unless you’re one of the very largest Fortune 100 firms, you’re not likely to have 80 CPAs and 40 XBRL experts on staff.

There was a lot of chatter about XBRL a few years back whether it was worth the effort and what the value-add was. How do you think that’s shaken out by now?
I think if we can get broad international participation, it will work out. It’s certainly helped in organizing data in such a way that [financial filings] are apples to apples, rather than apples to oranges, pears, grapes, blueberries, raspberries. Whether it was worth the effort, I don’t know that I’m in a position to opine.