Are you looking for the fastest path to growth and differentiation to support navigating these uncertain economic times or perhaps looking to reinvent your business model? Our customers have seen a significant increase in mergers, acquisitions and/or divestitures (MA&D) deals in these past two years, particularly in industries where market disruption and business changes continue to drive growth strategies. MA&D strategies are employed to gain access to new opportunities or are driven by several strategic business factors such as:
- New markets
- Building scale to reach new or more customers
- Removing excess
- Fulfilling unserved demand
- Improving technology, performance, and agility
- New business models
- Desire for broader geographic footprints
- Differentiation and/or competitive edge
When businesses consider entering an MA&D deal, they typically rely on high-level, top-down analysis of cost synergies, forward-looking valuations, and expected post-deal operational improvements. A well-planned integration strategy is one of the most critical factors for a successful MA&D journey. However, studies show that more than half of all MA&D deals fail largely due to high valuations, lack of understanding of value drivers, or incompatible cultures and technologies, just to name a few compelling reasons. MA&D deals can pose significant risk to a business if company leaders do not ask themselves the right questions to perform the appropriate analysis. Some critical questions would be:
- How do I know I am paying the right price for an acquisition to yield benefits to my business?
- What is the competition doing and will they step into a bidding war?
- What are the valuations for similar companies in my industry?
- What is the technology and talent of the potential acquisition and what challenges will we face in assimilating people into a combined entity?
- What will a merger or divestiture do to the combined financials of the total company?
- Can we integrate or divest the financials of the company quickly and according to our reporting and decision-making timelines?
- What are the IT infrastructure capabilities and how will that translate into a longer-term sustainable architecture?
No matter how mutually beneficial it appears, every MA&D deal brings a level of complexity and uncertainty that can obstruct the opportunities released by consolidation and the desire to create business value if the acquiring company is not careful.
To minimize these distractions, a company can benefit from an infrastructure that reduces risk and minimizes technology hurdles. The optimal new infrastructure would build harmony to fuel growth. This starts with a balance of simplified, standardized functionality and the delivery of a consistent system of automation, performance, agility, transparency, and reliability. And for both companies involved in the MA&D deal, access to detailed, actionable financial information that everyone can trust opens the door to significant opportunities. With a single source of truth and real time data, a company’s decision-makers have the confidence they need to make quick, actionable decisions to conclude the transaction with a high degree of confidence in the anticipated result.
Finance is the tip of the spear when determining whether a potential MA&D deal is optimal for their business strategy and direction and extensive due diligence is required. Performing this due diligence requires a level of mutual trust and collaboration by both parties that can best be acquired through enterprise-wide predictive insight and visibility. As both company’s finance organizations provide actual and planned financials, leaders from both sides of the MA&D relationship need to not only rely upon, but trust, the reported information to make the right decisions to determine whether it is in their best interest to move forward. With all financial information at the lowest level of granularity in one place, the company can plan for centralizing processes, people, and technology. Each side of the MA&D deal would benefit from performing simulations to model the assumptions embedded in the financials of their respective companies. Simulation technology supports acceleration of the evaluation, modelling, and integration of target acquisitions. Conversely, the ability to model target divestitures allows a company to optimize bundling parts of the business that are underperforming or misaligned with organizational goals and maximize attractiveness to prospective buyers.
Important to both companies is the capability to gain this insight quickly and at any time. A CFO must develop and substantiate this efficiency story for corporate stakeholders regarding expected outcomes. Optimizing the potential of these opportunities requires agility and speed, thus the elimination of multi-company complexities through automation and standardization. This helps the CFO to communicate the overall vision for the transaction to corporate stakeholders and align to the company’s larger objectives.
Once the analysis is validated and the company is satisfied with the picture of their post-merger story, the deal will successfully conclude. Oftentimes, that is when the fun begins. Successful post-merger integration has always been a challenge for an acquiring company, but especially today, as economic conditions, global unrest, and new ways of working have caused unprecedented turbulence. Companies need technology capabilities that can help them model and track all of these unusual conditions and build scenarios of possibilities for further analysis to make the best business decisions. And the traditional types of complexities that companies encounter are still top of mind with a need for a speedy integration. These are data harmonization challenges, including establishment and integration of new legal entities (intercompany transactions, global trade and tax). Treasury, cash planning and compliance management need particular attention, especially as it relates to maintaining appropriate working capital and banking relationships during the integration period, along with understanding new regulatory or tax considerations. Security also needs to be top of mind during a time when there may be disparate processes and systems along with temporary operating model misalignment.
Now let’s consider synergies. Post-merger analysis in real time is critical for understanding and capturing the synergies desired. Efficiently integrating one business into another and aligning business policies and practices is as much about the people as it is about the physical business. Finance and HR need to make sure employees understand any new goals and encourage excitement about working towards them. To accomplish this, a CFO needs to be equipped to explain the results within the months after conclusion of the deal and monitor progress towards meeting the expectations for the newly formed company. This added effort can go a long way to successfully capturing the value of a deal.
To have results to analyze, the company needs advanced technology tools for agile accounting closing and consolidation and the ability to view actual results throughout the days, weeks, and months following the deal closing. With centralized finance, a company can translate massive amounts of data into a harmonized reporting structure to make quick decisions, increase revenue, and reduce costs while improving service through efficiency, agility, and transparency. It is important to eliminate the need to wait until the end of the month, after the financial books are closed, to receive business intelligence and, a couple of weeks later, a final report. Instead, with advanced analytics and the continuous close, finance can obtain accurate information instantly – even in the middle of the month – to predict month-end performance and take immediate action. With well-understood expectations and outcomes, employees can proactively identify and seize opportunities rather than reactively chasing random expectations. Putting the power of real-time, actionable insight at all employees’ fingertips eliminates many of the roadblocks commonly encountered during the integration process, including financial governance, access, and control.
In summary…how to maximize the chance for a successful integration
Proactive considerations of people, process, and technology make a flexible, speedy integration or divestiture of companies the least risky approach. If done correctly, using the right tools, an MA&D deal can reap great benefits for a company that is prepared to structure a deal that draws on their cultural strengths and integrates correctly into their business model and strategic direction. It is important for a company to understand the context of its unique circumstances, including the risks and benefits associated with a particular transaction. With a plan for handling integration risks and post-closure opportunities, a company greatly enhances their opportunity for success. Executing on the integration plan is the focus of Finance, HR, and IT and they must be able to monitor progress, communicate outcomes versus expectations and take corrective action quickly.
Note: this is the first in a series of blogs on executing a well-designed MA&D transaction. If this is of interest to you, please “like” this topic and check back monthly for future blogs on this topic. And please send any suggestions for MA&D topics in the comments section. All suggestions will be considered for future publications.
