The Strategic Role of the CFO in M&A

Each time a current market enters a frenzied getting time period, great specials get more durable to discover and faults more probable. That’s what we see ideal now in M&A as the flood of quick dollars and fears of tax hikes underneath the Biden administration merge to fuel a document-breaking acquisition spree. 

World M&A specials surged to $two.82 trillion in the very first six months of the year, in accordance to Refinitiv, up 132{ae9868201ea352e02dded42c9f03788806ac4deebecf3e725332939dc9b357ad} from 2020. That marks a 20{ae9868201ea352e02dded42c9f03788806ac4deebecf3e725332939dc9b357ad} increase from the preceding document significant in 2007. From mega-specials to modest acquisitions, M&A action is on an unprecedented tear worldwide.

In this kind of natural environment, numerous buying providers are overpaying for what they get and skipping in excess of critical areas of owing diligence that will come again to haunt them. 

Larger selling prices are also generating it that considerably more durable to obtain the wanted synergies from specials. On the other side, concentrate on providers will pass up out on after-in-a-life time chances by not placing in the work to make themselves as beautiful as achievable to customers.

On both of those sides of this equation, the CFO has an increasingly central function to play. The days are long gone when CFOs should really be limiting their M&A involvement to poring in excess of expenses and economical statements, however that is frequently where by their convenience zone lies. 

A McKinsey survey of 200 global CFOs discovered that charge and earnings synergies in specials were being considerably more probable to satisfy targets when the CFO was closely involved in the process. Some 76{ae9868201ea352e02dded42c9f03788806ac4deebecf3e725332939dc9b357ad} of providers where by the CFO was very involved described their charge synergies were being reached, as opposed with forty six{ae9868201ea352e02dded42c9f03788806ac4deebecf3e725332939dc9b357ad} when the CFO wasn’t involved at all. For earnings synergies, the difference was sixty seven{ae9868201ea352e02dded42c9f03788806ac4deebecf3e725332939dc9b357ad} to 32{ae9868201ea352e02dded42c9f03788806ac4deebecf3e725332939dc9b357ad}.

CFOs on the promote-side should really be guaranteeing that probable customers will have dependable facts when they dig into the company’s info and operations. They should really recognize both of those the seller’s attractiveness to acquirers and any probable weak details or skeletons that need to be mitigated. 

On the purchase-side, CFOs should really be mapping the integration strategy with a distinct vision of where by the merged organization is likely and the synergies to be received.

Assuming that deal fundamentals make economical sense, there are quite a few critical regions where by CFOs should really be paying out their time to stay clear of pitfalls that can derail the full teach.

• Integrating legacy IT units is between the most significant concerns that can lavatory down specials and guide to skipped synergy targets. On the promoting side, CFOs should really be accomplishing comprehensive opinions with their IT teams. They need to be prepared to make clear the concentrate on company’s tech journey and the accessibility of its info in a way that holds up to scrutiny. Likewise, buying business CFOs need to do a deep dive into how the concentrate on company’s tech infrastructure will fit with the acquirer’s foundation units and work by way of a changeover prepare so that the tech is prepared when the deal closes.
• Cybersecurity and info security are an increasingly crucial portion of the tech photo for buying firms. CFOs on both of those sides need to make it their career to recognize any vulnerabilities and handle them.
• The COVID-19 pandemic has highlighted the significance of obtaining sturdy offer chains, vaulting the situation up the record of prime acquisition concerns. Concentrate on business CFOs need to clearly show they have a monitor document of getting materials as desired and the logistical competence to maintain accomplishing so. In addition, buying CFOs should really be digging quite a few levels deep to recognize the toughness of the target’s vendor relationships and any vulnerabilities that could guide to offer bottlenecks.
• When it will come to offer chain management, environmental, social, and governance (ESG) criteria and compliance have grown in significance. Obtaining CFOs need to make it their organization to know how probable targets have been monitoring and certifying their suppliers and third get-togethers to make sure their providers do not inherit any reputational or lawful problems.
• Tariff and obligation compliance is also increasingly on the radar for buying firms, reflecting the rising complexity of the global trade landscape and the small degree of compliance by numerous more compact providers. Poor compliance ranges from small clerical faults to egregious mistakes that could guide to significant liabilities for an buying organization. As a final result, CFOs need to recognize the appropriate restrictions and how closely a business has adhered to them.

Likely previously mentioned and beyond the common owing diligence playbook will come with a draw back: it can acquire more time and guide to undesired delays. 

CFOs also need to be strategic by building a prepare upfront that considers and reduces the scope for surprises. Bargains prepared this way with the CFO at the helm will final result in increased good quality mergers and improved returns. 

Lou Longo is a partner and international exercise chief at Plante Moran.

contributor, mergers and acquisitions, strategic CFO, Technique