The role of the CFO in M&A has expanded significantly. In the past CFOs played a more passive role -obtaining financing, keeping score and reporting to stakeholders. Today CFOs are key members of the C-suite team. They are called on to help facilitate and develop the vision, strategy and plans needed to ensure the success of M&A transactions.
The success of most M&A transactions relies on identifying synergistic opportunities that can be realized from combining two companies such as cost reductions and new revenue streams. The CFO and other C-suite executives work together to identify potential synergies, and develop integration plans to realize the benefits expected from them. The CFO also plays a key role in facilitating post-acquisition integration plans, working with other departments to capture projected benefits.
Once synergistic opportunities have been identified, and the investment required to attain them can be quantified; the CFO is responsible for determining realistic financial goals and objectives for M&A transactions. If the projected financial results meet or exceed the minimum required return on capital, the transaction can be completed.
To reach this point in the M&A process, the CFO needs to take a forward-looking view of what the combined companies will look like and how they will operate in the future. This requires developing a new business model for the companies. The new business model should include future-proofed assumptions of how the companies will operate in the future, not how they operate today.
In order to develop future-proofed assumptions, the CFO needs to work with the C-suite team to determine the level of integration of the two companies that would optimize the synergies and efficiency of operations in the future. The level of integration is largely dependent on the similarity of the companies and amount of intercompany activity anticipated. Companies that are similar and have a large amount of intercompany activity are usually integrated to a higher degree.
The future-proofed view of the combined companies should take into consideration elements that can make an M&A transaction successful or not. These include areas which can be objectively evaluated and others which can only be evaluated subjectively. CFOs need to be careful that subjective elements are given adequate consideration. Remember, the AOL Time Warner merger failed primarily due to incompatible business cultures.
- Organization and personnel – strengths and weaknesses
- Business culture – compatibility
- Business processes and procedures – pros and cons
- Information technology – technology platform needed, level of automation, cloud-based applications
The best information technology plan may be to keep each company operating on their respective legacy systems and simply overlay a consolidating software application to pull data for consolidation and reporting, and increase the level of automation of some applications to increase efficiency and reduce costs.
In this case CFOs should partner with experienced software providers that can sync information from virtually any business application, and have experience automating accounts receivable applications.
Lockstep Collect is a leader in cloud-based and premise based software solutions for consolidating data from disparate business systems and automating accounts receivable processes.
If you would like to learn more about how you can benefit from consolidating software and accounts receivable automation, please contact Lockstep Collect at www.lockstep.io.
