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Integrating an acquisition - the role of a modern day finance function

A series of articles looking at everyday challenges CFOs are facing and how finance functions can embrace the change and transform the business. The articles are written in collaboration with PwC, the ACCA and Jens Madrian - CFO, Reactive Technologies.

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The role of the modern day finance function in integrating an acquisition

Against the backdrop of technology led disruption, business leaders are increasingly looking to acquire, merge or partner with others to attain new capabilities, gain access to untapped markets, or to improve customer experience, to drive organisational growth and increase value.

Research has shown that too many acquisitions and mergers fail to realise the value expectations set for them when the transaction rationale was formulated. While the vision is often clear, the way in which you, as a CFO, seek to achieve it can be the critical difference between realising the value, or not.

The CFO is fundamental to defining the approach to the deal and to ensuring that the anticipated value is achieved not only across finance, but across the organisation as whole. They are often the common thread in translating acquisition strategy into post-deal achievement of the targets. In a recent PwC1 survey of CFOs, Corporate Development Directors and Transformation Directors of highly acquisitive UK listed and private equity owned businesses, only 25% of respondents felt that they were capable of successfully delivering the end-to-end identification, delivery and capture of deal value.

CFOs need to be cognisant of the need to reappraise the nature of transactions, to clearly express the value that is created through the deal; providing transparency across the Executive team as to the deal rationale, the approach to integration (especially of often differing cultures) and appraising the impact of the need to deliver the value on their function.

While these challenges are not necessarily new, the risks of not addressing these are far greater for the modern day CFO, given the increased expectation for faster, more timely and insightful analysis, even from disparate systems and data sets.

Key actions for CFOs to deliver deal value in the digitally enabled world include:

  1. Driving a consensus and accountability across the organisation with a commitment to value
  2. Implementing a clear and robust finance operation immediately post acquisition
  3. Optimising the delivery of value in finance
  4. Capturing and reporting the deal value

[1] The CFO’s role in Orchestrating the deal, May 2016

Step 1. Driving a consensus and accountability around the deal.

A clearly expressed and well executed acquisition or merger growth strategy sets the goals for value creation, providing transparency as to the deal rationale and approach to integration.

Synergies are typically the primary tangible justification for making an acquisition. Experienced CFOs aim to focus the deal and business unit teams at each stage of the transaction on identifying, qualifying, executing and tracking these synergies; creating consensus and accountability throughout the organisation.

Engaging early with functional owners during due diligence to support the identification of potential cost and revenue synergies, investments required and likely timing, helps drive ownership and accountability from the outset, bridging the gap with the actual teams required to execute and deliver synergies post-deal.

In ensuring that the organisation seeks to achieve these synergies CFOs will have created a blueprint for action which summarises where the value of the transaction lies, where and when it will be realised and the key assumptions that underpin it.

Accessing a sufficient level of data granularity during the diligence phase will always be a limiting factor in the M&A process. Adopting a mixed top-down and bottom-up approach supports the creation of an intelligent, pragmatic and reportable blueprint thereby establishing the basis for a comprehensive post-completion validation, execution and monitoring regime; using Day 1 as a springboard for value delivery while providing clarity to communications and the employee retention strategy.

In the more customer centric environment, the measurement of value drivers becomes increasingly challenging. The ability to harness the power of both structured and unstructured data as part of achieving this consensus around the blueprint is key. The monetarisation of data is often one significant factor in emerging deals, yet the value of that data is often hard to express. Exploring these new sources will lead to the development of insights around operational effectiveness and cost-base; learning more about the customers, products and security of revenues.

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Step 2. Implementing a clear and robust finance operation immediately post acquisition

The demands on the finance function, in advance of and immediately following deal completion can be significant. Often the volume of tactical activity that is needed to seamlessly take control of an acquisition – ensuring control and compliance over finance processes, implementing the new requirements of the acquisition structure while providing stakeholders and business with the insight required to drive performance can be significant. This is against both the established business plans and the value creation plan at the heart of the transaction.

The lack of robust and timely financial and non-financial information in formats that are readily understood can be one of the most destablising issues in the 100 day post-deal integration plan. Systemising reporting in the new environment, building on the work undertaken in the diligence phase, is important; ensuring alignment in definitions, prioritised reporting needs and timelines is a fundamental activity. CFOs should consider how analytics technology and data can be used effectively to address system issues before longer term solutions can be developed.

In the inevitable disruption that follows a transaction the CFO needs to be mindful to ensure operating procedures are established from the outset that can be replicated and sustained throughout the integration process. This minimises the amount of process inefficiency, while providing clarity over the impact of any phased headcount reductions on key processes. Similarly, it’s important to adopt a coordinated approach to the integration of support functions, ensuring key IT, HR, Legal and Tax dependencies are fully understood and mitigated.

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Step 3. Optimising the delivery of value in finance

Given that the CFO is one of those responsible for holding all functions accountable for the achievement of the value commitments made pre-deal, they need to be seen to take the lead in transforming and optimising the finance function itself. Transformation should be seen as the final building block of the M&A process, leveraging the deal as a catalyst for change to drive significant and sustainable long-term benefit.

CFOs often recognise, in hindsight, the value that can gained from establishing a clear end-to-end view of the best action plan. They should create a clear view of the target operating model for finance, to inform decisions made, and activities undertaken, from ‘Day 1’ to begin to:

  • Reduce implementation costs
  • Minimise execution risk
  • Minimise rework over different stages of the integration
  • Ensure that key talent is not only retained, but also developed during this period
  • Challenge the perception of how finance will be provided against how it is currently provided

Whilst there is a temptation to ensure that finance continues to meet its obligations to stakeholders and the business and to minimise change, it is an opportunity for the CFO to envision a different operating model, using the transaction as a catalyst for change. This could include more automation and greater use of technology thereby delivering synergies identified as well as reducing key person dependencies on legacy systems that do not feature in the medium term technology roadmap for finance.

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Step 4. Capturing and reporting the value generated

While responsibility for delivering synergies will rest with specific business units and functions, a centralised process and set of tools for monitoring, tracking and reporting these is essential towards demonstrating the delivery of benefits. This will enable the CFO to make declarations with confidence and allow key stakeholders to validate the value created.

The most sophisticated processes not only track high-level metrics, such as total cost synergies and headcount retention but tie these integration milestones into the value creation targets identified at the start. This drives a forward looking approach allowing management to identify where, in future, synergies are likely to be on/off track and prompting the mitigation of delivery risks.

The digitally agile CFO needs to combine an appreciation of digitally enabled business models with an appreciation of how, in this environment, value is created, realised and reported.

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Contact us

Brian J Furness

Brian J Furness

Global Consulting Finance Leader, Partner, PwC United Kingdom

Tel: +44 (0)20 7212 3917

Ben Cox

Ben Cox

Partner, Delivering Deal Value, PwC United Kingdom

Tel: +44 (0)7714 567 366

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