Post merger integration for the Finance function Posted In: CFO / FD, Project Management 16 Jan 2014

Acquiring a business takes a lot of planning, often weeks, if not months or years of negotiation (both formal and informal).  A substantial period of due diligence, the period in which you get a closer look at your targets books is the first time you get behind the public numbers you based your research on.  Of course the period of research itself, before you approach your target, can also take months or years.

 

All this research, assessment, negotiation and finally a complex financial transaction complete the acquisition and finally you have ownership of a new asset.  Now what?!

 

Post Merger Integration is what it says on the tin – two companies are merging or coming together to operate under one roof.

 

Post-merger/acquisition integration is like a change project on steroids. There is an overwhelming amount of work to be done with insufficient time and resources available to do it.  HBR blog

Any merger, and, pending its size, acquisition, will have the full attention of the board.  But that’s the purchase bit, the post merger or acquisition is perhaps sometimes like the non-talented sibling, every one means to treat it equally, but somehow it doesn’t quite get the attention it should:

As a McKinsey Article: Modernizing the Board’s role in M&A, puts it:

Boards should examine a transaction’s PMI plan in as much detail as they do pro forma statements. While this might seem to verge on meddling in management, our experience suggests otherwise. We see more variation in the quality of post-merger plans than in the financial analysis and pricing of transactions.

  • Is the PMI designed to capture maximum value? The PMI plan also must be adaptable enough to accommodate new value-creation opportunities and risks uncovered in the early weeks of integration.
  • Is the PMI leader well equipped to realize the deal’s value?
  • Can we launch the PMI on the day the deal is announced and complete it rapidly? If the answer is no, value leakage is inevitable. Our experience suggests that lost value is difficult to recover—and is rarely captured at all if a board accepts a strategy of “we’ll integrate the business later.”

 

 

In accepting that post merger integration is a difficult, time consuming, complex task we can look at the nature of the planning we need and some of the challenges to consider within that planning, looking at more detail at the Finance function:

From Deloitte’s Review: Post Merger Integration

…. statistically condensed these 35 factors into four categories of risks — synergy, structure, people and project — that can undermine the success of post merger integration. Synergy risks comprise all factors stemming from inadequate synergy realization planning, while structural risks arise from mismatched organizational structures and processes. People risks refer to factors based on personnel resistance. Project risks, the last category, involve project-related obstacles to post merger integration.

 

From Deloitte: Improving M&A Value Through Due Diligence and Finance Transformation

Buy-side Due Diligence for Value Realization

 How does the target company manage its business, and how must that model be adjusted

to operate as part of the consolidated group?

 

 How does the target company manage the finance function, and what changes will be required? Are the target’s reporting standards in line with the buyer’s?

 Do the target’s information systems align well with the purchaser’s existing system, and what will be the integration cost?

 Finance Transformation: Critical Considerations

 1. Accelerating and Expanding Synergy Capture

From identifying, to tracking and realizing synergies, the CFO can facilitate the synergy process for the combined entity.

 2. Process and Technology Simplification

For the finance organization, simplification can mean rationalizing the legal entity structure and control procedures, converting to a shared service model, and focusing on the analytics that drives business value. Technology is typically the enabler for these initiatives.

3. Compliance

Tax and accounting compliance are major issues in getting through an issue-free Day 1.

 4. Well-planned Talent Transition

 As the “face” of finance to the organization, CFOs should be involved in designing the new organization, assessing talent, developing retention strategies and setting a vision that excites the finance organization.

In reference to the fourth point raised in the Deloitte report, namely talent retention, it is worth returning to the HBR blog:

First, integration is an opportunity to develop execution skills.  Second, integration can give you a chance to learn how to work with a diverse range of people.  Finally, integration is a unique chance to get visibility.

 In his book M&A Integration – How to Do It   Danny A. Davis looks at the requirements of each functional area.  Much of the points raised above are captured with plenty of additional action points to consider.

Davis suggests an integration readiness review is needed and that includes a specific one for Finance.  He lists over 20 broad areas that should be addressed as the finance integration is approached including details such as:

  • ·         Plan to solve backlog and reconciliation issues
  • ·         Set financial KPIs and benchmarks
  • ·         Ensure travel and expense authorization procedure is in place

Davis goes on to outline how the overall finance structure of the business, plus a review of opportunities to smooth profits, for example a major IT spend could be associated with the integration.

Further details are provided on the aspects to consider for both the future infrastructure of the business and the current readiness, with an overview of considerations for each of the following areas.

Financial Performance Review, Benchmarks, KPIs

Group Reporting

Treasury

Risk Management

Clearly when a major transaction, acquisition or integration, is planned, at least as much consideration should be given to the post transaction process.  From my experience working on finance transformation projects and reading the various resources quoted in this article it is clear there are additional risks involved when a transaction of a material size is thrown into the mix.

It brings me back to the original quote – Post-merger/acquisition integration is like a change project on steroids, you have to follow all the regular project management protocol with the added challenge of combining another entity that may differ in culture, values, legal environment, willingness to change etc etc.