The Value of the deal: Controllership’s role in Strategic Transactions

How can Controllership support value creation across the Mergers and Acquisitions (M&A) life cycle?

In today's dynamic business environment, companies are increasingly focused on maximising value and achieving synergy targets more rapidly and efficiently through transactions. The Controllership function is pivotal in this process. Firstly, it ensures organisations adhere to external reporting requirements during transactions. Secondly, Controllership serves as a vital business advisor, uniquely positioned to estimate, track, and actively drive the realisation of M&A synergies and to protect overall deal value.

By engaging in various capacities throughout the M&A lifecycle i.e., Deal origination to post deal integration and transformation whilst balancing both compliance and value-driven activities, Controllership can significantly protect and enhance deal outcomes. Empowered by an understanding of their varied roles and contributions, and guided by Deloitte's structured framework, controllers can better prepare for successful integrations or separations, driving greater value across the organisation.

How do the varied roles of the Controller contribute to value creation in Mergers and Acquisitions?

Here are some examples on how the varied roles of the Controller contribute to M&A value creation:

• Foundational Compliance and Financial Integrity: Controllers uphold the 'Steward' and 'Operator' roles by ensuring rigorous accounting, tax, and reporting compliance. This includes satisfying all external information requests and regulatory requirements related to the transaction, thereby mitigating financial risk and maintaining trust.
• Strategic Advisory and Due Diligence: Acting as a 'Strategist' and 'Catalyst', Controllers contribute significantly during M&A strategy, due diligence, and transaction readiness. This involves evaluating the target's financial health, assessing financial risks and opportunities, and providing critical insights that inform deal structuring and valuation.
• Operational Integration and Execution: Controllers play a crucial operational role in managing the complexities of integration or separation. This encompasses overseeing people, process, and technology changes, leading integration project management, and facilitating cross-functional coordination. They ensure financial statements are accurate, new financial systems are established, and financial operations continue seamlessly post-transaction.
• Synergy Identification and Value Realisation: A core value-driving contribution is the identification, quantification, and ongoing management of synergies. Controllers provide essential estimates and forecasts to guide informed decision-making, monitor performance against these projections, and track targets diligently to ensure the organisation achieves its post-deal objectives and maximises value capture.

What lies ahead? An example framework for Controllers to prepare for an acquisition.

As Controllers strategically navigate their roles throughout the M&A lifecycle, a structured framework can serve as a vital checklist to prepare for mergers, acquisitions, or separations, ensuring the function drives maximum value for the organisation. Our example framework below outlines key areas for consideration, providing an excellent starting point for your upcoming transactions and positioning the Controllership function for success.

Transform the internal accounting process.

• Synchronise financial policies, approval limits, and delegation of authority.
• Execute on the first combined close and consolidation.
• Promote alignment and maturity of accounting processes.
• Merge the planning, budgeting, and forecasting functions.

Integrate enabling technology.

• Streamline disparate systems and master data methodologies.
• Catalyse technology transformation.

Preserve corporate governance.

• Expand the control environment.

Facilitate decision-making.

• Understand the transaction strategy and coordinate across functions.
• Drive implementation and integration of strategy and project plans.

Satisfy financial filing and regulatory requirements.

• Apply business combinations guidance and perform the purchase price allocation (PPA).
• Liaise with auditors during a transaction.
• Navigate additional external reporting requirements.

Satisfy internal and external stakeholder expectations.

• Confirm appropriate working capital structures and treasury operations.
• Implement the tax strategy.
• Achieve synergies post-close.

Optimise talent capabilities.

• Create an efficient, streamlined joint organisation and workforce.
• Define transition services agreements (TSAs) and the eventual exits.
• Manage capabilities and bandwidth of resources

Confirm transparency, consistency, and comprehensiveness.

• Maintain clear communication of integration efforts.
• Collaborate cross-functionally and manage interdependencies.

Making the whole greater than the sum of its parts

While the above framework provides a crucial checklist for Controllers to prepare for and navigate M&A successfully, there are additional considerations to significantly enhance value capture in mergers and optimise value extraction during separations. These include:

Identifying and considering all opportunities: Controllers must diligently explore all potential sources of value, encompassing cost, revenue, and capital synergies.

Setting and quantifying targets: It is essential to establish and quantify clear targets for both ongoing (run-rate) synergies and one-off integration costs.

Preserving the deal rationale: The initial strategic logic behind the transaction must be consistently maintained and reinforced throughout the entire process, from initial target assessment to several years post-closing, to ensure the deal's intended benefits are realised.

Making the parts greater than the sum to optimise separation

To optimise value during a separation, it's crucial to focus aggressively on cost management from the outset. This involves maximising the value of the separation itself and any subsequent restructuring of the 'RemainCo' (the continuing entity). Key actions include:

• Early Cost Identification: Proactively identify all one-time separation costs.
• TSA Planning: Determining Transition Service Agreement (TSA) requirements needs to happen early in the process.
• Stranded Cost Management: Establish clear targets for stranded costs and develop a detailed cost model for the end-state RemainCo, assigning clear accountabilities.

Often, significant stranded costs are only discovered post-transaction because sellers lack a clear cost baseline or a defined target cost structure. Additionally, one-time separation costs require a simple and effective tracking mechanism. By intensely focusing on these cost management priorities during a separation, organisations can significantly optimise the benefits derived.

Ultimately, Controllership plays a critical, multi-faceted role in M&A deals. By leveraging Deloitte’s guiding framework and actively considering strategies to enhance value capture, the function can redefine its impact and ensure successful M&A outcomes.