For companies who are selling, raising capital or acquiring smaller businesses for growth, finance leaders are a vital organ at every stage of the deal. How can the CFO steer the M&A process to success?
Mergers and acquisition (M&A) deals are some of the most intense activities any organisation might face during their business lifecycle. While it presents enormous opportunities for both the buy-side and sell-side of the transaction, without proper planning and post-deal integration, failure is imminent.
As risk managers, strategists and, of course, financial custodians, CFOs bear a big chunk of responsibility in the success of the deal.
Anil Menon, M&A and IPO Leader, EY MENA, confirms this notion, saying CFOs are involved in all the facets and full lifecycle of the transaction. “They are an integral part of the deal team,” he says. “Starting from transaction planning, strategy, execution, negotiations, deal consummation and post-merger integration.”
“Primarily, the CFO’s role starts from identifying the objective behind a potential M&A deal,” says Adil Taqi, CFO, DAMAC Properties. “They must ensure that they are buying a company for the right reasons and the right price. The finance figurehead is pivotal in the financial modelling and in determining the savings and value addition the deal will make.”
Once a deal is done, organisations need even greater attention from the finance chief. When it comes to a merger, bringing an integration plan to reality is the main focus. According to Neeraj Tekchandani, CFO, Apparel Group, the finance chief should ensure a smooth transition of the businesses with respect to the change management process. “Among the priorities of the CFO is warranting the alignment of both organisations’ overall strategy, objectives, goals, vision and mission.”
Menon explains that as financial stewards of organisations, CFOs should act as catalysts in value creation by identifying and capturing potential synergies, including the operational and financial functions. “The top priorities of the CFO post-deal typically entail ensuring that effective transition plans, day one plans, synergies realisation plans and a well-thought out integration plan is in place with fully committed teams and clear timelines,” he says. “He must also make sure that the integration objectives are clear and well-defined; and a robust stakeholder management plan is in place.”
Due diligence does not end, once the contracts are signed. Post-deal integration programmes are critical to fully achieve success. A survey by Deloitte highlighted that directors and CFOs see that the greatest cause for concern in achieving M&A success is failure to effectively integrate the post-merger entity or the target company, with 37 percent of directors and 43 percent of CFOs citing this answer. Hence, CFOs should keep in mind that the first 100 days after the transaction are vital. Missed opportunities and mistakes made during this period can haunt the merged organisation for years.
However, a post-M&A integration is something that needs to be planned right from the early stages of the M&A transaction. “It is of paramount importance to understand the positive and negative forces impacting the integration process,” says Tekchandani. “This is because a large number of transaction in the M&A space have failed post-integration due to the challenges involved which were never analysed or not properly addressed with the integration strategies.”
Taqi echoes this sentiment explaining that, first and foremost, the CFO and other executive leaders should ensure that compatibility of the organisations. Doing so can guarantee the smooth flow of the integration plan post-deal. “I personally don’t believe that opposites make a perfect fit,” he says. “Therefore, key decision makers involved in the deal should identify the commonalities of both organisations – are they both sales-oriented, financially prudent, innovative and so on. A CFO plays an important role in this setting because they can bring a more realistic and objective insight into the matter.”
A good integration plan also typically comprises communicating with all the stakeholders early in the process, creating and implementing a robust day one plan by addressing matters relevant to people on both sides, says Menon. “Through this, the C-suite can accelerate the transition phase across all work streams and processes, identify immediate and medium priorities and prepare a definitive action involving all the stakeholders, create leadership teams at various levels.”
Every organisation has its own culture. When attempting to marry one culture with another, challenges are inevitable, and this of course requires the CFO’s most capable attention. The Deloitte study also cited that culture has emerged as one of the dominant post-deal barriers, causing 30 percent of failed integrations.
“The common bottlenecks the CFO and the C-suite have to deal with post-deal, include fear within the organisation,” says Taqi. “When two organisations are merged there arise some questions in job security. This is a common issue in top management as well. People should remember to put their focus on shareholder value, not fear. This is easier said than done of course.
“While I think organisational culture is one of the most abused terminologies in the corporate space, this remains to be one the major issues affecting M&A success. As I have described previously, if the two companies involved in the deal do not connect at a cultural level, then they are doomed from the start. This is because, if their principles and objectives are not compatible, the whole post-deal integration process will only be spent on politics,” explains Taqi.
According to Menon, a good way to address this issue is by creating an environment that’s transparent and encouraging in fostering relationships across various levels of the organisation. “Developing a clear stakeholder map to understand, evaluate and neutralise resistance to change is a critical element and this can be achieved by setting up people forums in the combined organisation and considering inputs from both sides while creating a day-one plan,” he adds.
Tekchandani seconds this, saying communication, transparency and open dialogue pave a long way for a successful M&A integration. “The company should choose a senior leadership team from both of the businesses and form a joint integration committee responsible for overseeing the integration process and its overall success.
“The C-suite play a critical role in driving that change management and also realising the common synergies between the businesses for the good of the overall organisation,” he adds.