The role of the CFO in M&A
Mergers and acquisitions (M&A) is the one area where the stakes are higher than most for CFOs. And until a CFO has been through the process of acquiring a business or being acquired, it is hard to know what to really expect. One thing to remember, though, is that M&A is a strategy, not a project.
The 2022 PAC Report, a European Survey of 250 Professional Services Firms, found that almost 40% of European professional services firms stated that M&A would be a primary growth driver in the year ahead, with organizations in France and the UK set to be the most active. And 48% stated it as a secondary driver.
With mergers and acquisitions expected to rise across the board in the next few years, many private equity and venture capital firms will be homing in on the plentiful opportunities. But opportunities are never without adversity. Companies involved in M&A transactions face a range of potential challenges at strategic and operational levels.
When two merging organizations are running on totally different financial systems, managing the resulting compliance, security, and management issues can become a real barrier to both initial due diligence and ongoing reporting.
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So, what is the role of the CFO?
CFOs need to be the one person from the executive team that steers the ship when it comes to facts and figures. The common rationale for CFOs during M&A is to create synergies in which the combined company is worth more than the two companies individually. These synergies can be due to cost reduction or higher revenues.
CFOs tend to be diligent and precise and look for new ways to reduce risks in M&A deals to drive long-term value. It is their job to scrutinize deals in fine detail, find different valuation metrics to weigh risks and benefits, and facilitate decision-making quickly to avoid missing out in fast-moving markets.
The data behind the story needs to be provided as well as an objective set of eyes across the numbers, and CFOs need to also keep sight of their core responsibilities. It can be a very challenging time for finance teams. More is asked of them than any other team during the M&A process.
M&A needs to be looked at in phases, and for this, we are going to approach it from the perspective of the acquiring organization:
Phase 1: Information gathering
Gather as much information as possible so you can map from your accounts to theirs. Conduct a gap analysis between your policies and theirs, including procurement, budgeting, expenses, etc. And remember, you could learn from the acquired organization as their policies could be better or more comprehensive.
Part of phase 1 must also mean protecting the assets of the acquired company, so gain control of cash and bank mandates, and reconcile any open balances in FP&A systems.
Phase 2: Look at everything
Look at how they raise invoices, deal with supplier invoices and bank reconciliations and really get into the nitty-gritty so you understand exactly what you need to do to get that into your system and harmonize your policies and procedures.
The main focus here is to step up the IT infrastructure with all entities mirrored in your ERP system. It is not a quick process, and full integration will take several months.
CFOs should then create a workbook looking at everything you want to know about integrating via M&A. Company culture is perhaps the most critical aspect of the merger because if the two cultures are out of sync, this can lead to people from the acquired company resigning, which could leave knowledge gaps.
Phase 3: Start integrating
Integration is one of the most challenging things to get right when it comes to M&A. You’re taking two entirely separate businesses and marrying them together, which means there will always be tough decisions to make. But it is also something that has to happen quickly to ensure the deal lives up to its predicted value.
Start integrating from the bottom up rather than the top down and set an integration program with deadlines. Look at procurement, p2p, cash cycles, and not just annual reports, purchasing price allocation, and completion accounts. Make sure tax is being handled correctly. As with their policies, check their processes too to make sure nothing is missed.
Phase 3: Feedback and evaluate
Feedback and look back to see what went well and how you can improve the processes for next time. You should never just rely on an external M&A team working in isolation. Keep updating your workbook with templates that outline what needs to be done and by when.
M&A integration needs to be seen as a strategy (strategic project), not just a list of actions to be completed. And it requires the full attention of the finance, IT, and executive teams.
CFOs also need to keep evaluating any resource constraints as this can negatively impact the ability to achieve the deal’s intended financial and business objectives.
How can Unit4 help your organization?
At Unit4, we believe that the right ERP platform can make a massive difference to both the likelihood of success of M&A projects and in maintaining business continuity. Standardizing your organization’s processes on a single technology stack backed by a system like our own cloud-based Unit4 ERP allows not just for a smoother ride and unified KPIs but carries distinct advantages across five major areas of interest. You can read more about those areas of interest here.
Our people-centric, project-focused solutions are purpose-built. Firms can better manage their businesses with industry-leading software for Enterprise Resource Planning (ERP), Human Capital Management (HCM), and Financial Planning and Analysis (FP&A).
Check out Unit4's People Experience suite. Our solutions support all types of PSOs around the world, offering unbeatable functionality, and giving you the tools you need for optimized operations.
