Guiding Investors to Value: How CFOs Guide Investors to Value During an M&A Transaction
Chief financial officers (CFOs) are strategists. They are charged with providing financial leadership, determining the strategic and business direction, and aligning the financial strategies of the organization to position their company to meet its long-term objective. In this capacity, CFOs are responsible for continually communicating with internal and external stakeholders including the investment community.
During a merger and acquisition (M&A) transaction, the intended outcome of the CFO’s interaction with the investment community is to maintain positive investor sentiments by demonstrating that the transaction is accretive and aligned with the company’s strategic objectives.
In an analysis of CFO communications for 56 major M&A deals that closed between January 2006 and May 2008, the findings revealed that the shareholder value was most likely to be preserved or increased when CFOs provided financial guidance during the quarter following the transaction close, but did not provide guidance during the quarter prior to the transaction close. Another significant finding was that providing Generally Accepted Accounting Principles (GAAP) guidance for the parent entity is the most effective strategy.
This paper describes the results of the research on the prevailing guidance practices and the most effective of these practices, and also presents our recommendations for consideration. The goal is to help the CFOs in their effort to choose the most effective guidance strategy for a merger or acquisition from a shareholder value standpoint by answering three questions:
- Should CFOs provide guidance?
- When should guidance be given?
- Which guidance method is most effective?
Download the attached article to learn more.