Merger and acquisition is primarily a financial role thus the CFO is integral to the management of any M&A activity. Despite having obvious strategic importance it is the role of CFO to provide the data in relation to the managing of acquisitions in particular in respect to project budgets, running due diligence program. Walk through any successful M&A campaign and you will find a CFO – probably a bleary-eyed one!
Indeed M&A is one of the more complex areas of corporate finance. The CFO is well placed to take primary responsibility for the management of acquisitions. Apart from statutory reporting, tax, treasury matters, the CFO will be exposed to due diligence aspects when a deal transaction is current and until full integration is completed – from both an operational as well as a finance management role.
An acquisition has many, many variables and usually demands not only examinational and analysis of numerous scenarios and accounts, but also requires some deft skills in scenario analysis.
Scenario analysis for the CFO in managing acquisitions involves making assumptions concerning, for example, populating models and merged entities. Further, the CEO and the leadership team will tend to use in house resources before commissioning external advisers (such as investigating accountants and lawyers) in order to work through all the contractual detail arising from the acquisition. A legally-minded CFO is useful.
Acquisitions are both complex and dynamic affairs requiring all the skills of the leadership team. M&A can be frustrating especially if the deal is large, requiring constant communications with HR teams as well as the finance people. There is also the aspect of stakeholder management in the case of public company shareholders and multiple shareholders in the case of private combines where there are earn out agreements in place as part of the acquisition. In this regard the CFO takes on the additional crucial role of managing expectations around the final exit amounts and payments, given that these are usually based on forecasts, assumptions and contributions.
The CEO may have said ‘Let’s do this deal, it’s great’, but it is the CFO who has to manage the process and the tension period until final exit of former shareholders and any disposal of assets that may arise. Inevitably part of the financial justification of the acquisition is that synergy benefits follow from the acquisition. It is the responsibility of the CFO to extract this value.
This places the CFO under considerable pressure as there are usually surprises in all acquisitions. In the words of one experienced CFO “no matter how thorough the due diligence you can’t find all the skeletons”.
Skeletons can come much later for example aggrieved former employees or past, undeclared disputes or termination payments that were previously not factored in to the equation. Further, some systems cannot be integrated seamlessly due to legacy factors (inoperability of IT systems for example) and these may result in additional costs not savings form synergies.
Managing acquisitions comes down to extreme due diligence, good people skills and a bit of luck – although perhaps not in that order!