Getting the Deal Done Right: The Key Role of Finance in Achieving M&A Results
The current credit crisis may have put a squeeze on some deal-making dreams, but for strategic buyers with strong balance sheets and the wherewithal to withstand the pressures of a major transaction, we believe this is a time of excellent opportunities. In addition, for CFOs and other senior finance decision makers, we believe this is a particularly viable time for you to exercise your management strengths in supporting your company’s bid for an M&A venture that can achieve significant results.
Merger, acquisition, divestiture and spin-off activities remain solid business strategies and can offer significant possibilities for value capture when managed well. The problem, however, is that few organizations actually get it right. In research conducted by Deloitte in 2000 and again in 2007, participants with recent deal experience stated that integration success was achieved only about 30 percent of the time. 1 Why? In our experience, it is because most participants misinterpret what determines deal success. It’s not just getting to the altar with the one you wanted, or closing the deal sooner than expected. Rather, it’s realizing before you even start that an M&A deal is not effectively “done” until the value of the transaction has been delivered.
This is where the senior finance leader comes in. As the role of finance has changed and grown in recent years, we have seen the CFO’s role expand beyond the traditional expectations of operations oversight and accounting and reporting stewardship. Today, we believe CFOs and other senior finance executives wear four important hats: catalyst, strategist, operator and steward. Each of those four roles can have an important bearing on the M&A lifecycle — strategy, target screening, due diligence, transaction execution and integration. These are the phases of the process from which the value can eventually flow. As with any process, M&A results usually depend on the right person motivating focus, speed, structure, and the commitment of the people involved. Value envisioned at the beginning of the process and value captured at the end are obvious areas for finance involvement, and, more than ever, the finance leader is usually in a position to drive the actions in between.
Let’s discuss in further detail. The finance leader’s roles vary with specific circumstances, of course, but viewed through the prism of an M&A deal, the CFO can be a key differentiator in achieving transaction goals as follows:
Catalyst — Stimulating behaviors across the organization to achieve strategic and financial objectives.
Strategist — Providing financial leadership in determining strategic business direction and aligning financial strategies.
Steward — Protecting and preserving the assets of the organization.
Operator — Balancing capabilities, costs and service levels to fulfill the finance organization’s responsibilities.
The strategist role can be critical in the first three of the four phases of the M&A lifecycle as the company defines deal objectives vis-à-vis corporate strategy, determines target criteria and conducts screening, and sets up a due diligence structure and process that forms the basis for deal management. In the fourth and possibly most critical phase, integration, the CFO’s other three hats can also be worn throughout blueprint development, detailed planning, Day One implementation, and End-State implementation. We have found time and again that effectiveness in these areas is often dependent on asking the right questions and challenging assumptions and priorities in a way that plays to the strengths of a trained and experienced finance professional.Note a selection of examples cited here:
- Do the integration guiding principles align with the corporate strategy and culture?
- Can junior staff interpret those principles and apply them on a day-to-day basis?
- Can the program’s progress be assessed based on the guiding principles?
- What are the must-haves?
- What level of detail must be included?
- How do we define success?
- Do the finance synergy opportunities align with the investment thesis?
- How will finance function synergy targets be achieved?
- What role will finance play in measuring ongoing synergy capture?
- How will the changes in policies, processes, and systems required for Day One be captured and monitored to control the impact on the ability to comply?
- How can the number of control points be reduced such that objectives are achieved at a reasonable cost point?
- Which of the predecessor company’s processes and systems should be adopted?
- Should the company attempt to migrate to one common set of systems and processes?
Day one implementation
- How can we produce consolidated GAAP reporting by first period post-close without disrupting the business?
- What do we need to do to align accounting policies and material judgment items?
- How can we achieve accelerated reporting close requirements?
- Will tax strategies and synergies drive a new legal entity reporting structure and what are the financial implications of such a move?
- How can we provide timely communications to the external markets and internal customers?
End state implementation
- Is the end state plan aligned with initial synergy plans?
- How do we determine that we have captured desired synergies?
- What is the end state vision for IT? How soon can we get there?
- How will this change impact my ability to deliver my finance charter?
- What is the ROI on the integration effort and did it exceed the original planning assumptions?
Value for an acquirer is usually dependent on five key results: integration strategy and management, revenue growth, operating expense savings, asset efficiency and reduction in cost of capital. Doing these well requires high levels of effective management of both day-to-day responsibilities and the transaction process itself. Integration in and of itself may not be conceptually difficult, but it requires a strong focus on execution, the right cadence, and the ability to avoid being overwhelmed by the size of the effort. Again, these are actions that play to the strong-suit traits and responsibilities of a seasoned finance professional.
The next move is yours
Sometimes the evolution begins by demonstrating that you are, first, a solid steward and operator—the more traditional roles—in how you have dealt with important business issues, such as Sarbanes-Oxley. Then, perhaps, you will be able to “graduate” to the decision making table with a stronger role in strategy and leadership. Whatever your methods may be, an effective way to present yourself as more than “the keeper of the financial information” can be to play a major role in shaping the company’s fortunes and future direction.
M&A opportunities continue to serve as strategically pivotal transactions in today’s increasingly competitive marketplace. But they usually require careful attention by experienced professionals. In effect, M&A transactions can be high stakes juggling acts, and we believe the top finance officer is well positioned to play an important role in finding the balance and synergies required to achieve the objectives of the deal across the entire organization as well as within the finance function. The CFO can set the stage and should be equipped with the right information and level of responsibility to lead the organization through a big – and financially successful – transaction.
1 Deloitte – Economist Intelligence Unit M&A Survey (2007); Deloitte M&A Survey (2000); Deloitte analysis.
Series: Making the deal work
Book: M&A lies
Resources: M&A library
Overview: Four faces of the CFO
As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.