3 M&A traps a CFO can fall into

0

Deciding to go ahead with a corporate merger is a team effort – and one of the most indispensable members of that team is the CFO.

Other members of the management team may bring fresh ideas, sales experience, or the ability to assess long-term strategy. But when it comes to closing deals, the CFO offers something just as valuable: data points that provide the information other team members need to make informed decisions. Simply put, the CFO is a source of truth.

A more descriptive name for the CFO role might be “Measurement Lead”. But in an M&A situation, being able to measure things right can be a double-edged sword. Indeed, while the decision to move forward on a deal involves data, it also involves many other factors and ultimately requires a leap of faith.

For CFOs who want to contribute positively to the M&A process, it helps to understand where things can sometimes go wrong. Here are three common pitfalls that can complicate a deal, before or after signing the papers.

1. Paralysis of analysis

As a CFO, people rely on you to be the person in the room who is exactly right. Wrong numbers are not acceptable as job output. But when evaluating a candidate for a merger or acquisition, you’ll likely be working with incomplete or imperfect information, although many details will become clearer as you drill down into an opportunity.

In a profession built on certainty, the lack of solid details at the outset can naturally make a person hesitant. But don’t let the “perfect” become the enemy of the good. Waiting for an ideal M&A situation could prevent you from exploring an opportunity that is actually better than you think.

To avoid this pitfall, a way must be found to separate known facts from aspects of an agreement that may be more vague. Sometimes, when it comes to taking the next step to learn more about an opportunity, “good enough” is an acceptable benchmark. Rather than delaying action until you can take a big step, prioritize learning over knowing.

2. Being too skeptical about a deal

The majority of transaction opportunities will not materialize for one reason or another. In some cases, the CFO may immediately notice red flags in a particular transaction and let the group know their feelings earlier in the process than they should. The CFO should take personal responsibility for providing accurate information to the group about a potential transaction, but should not take personal responsibility for being the resident skeptic or opponent of the group. No one should push to kill a deal until the band has had a chance to hear all the available facts, good or bad. Once the CFO has provided this information, the group should structure its decision-making so that all members of the leadership team are heard and everyone’s ideas and concerns are considered fairly.

3. Delayed implementation of financial integration

Once a deal has closed, a CFO plays a key role in post-merger integration, and how they approach this process can make a big difference in the efficiency of the business going forward. . The pitfall here is to allow other aspects of integration work to take precedence over financial integration work.

Right after a deal is struck, there are a lot of moving parts, and sometimes a management team will have differences of opinion about what to prioritize. It’s easy for the finance operations manager to let their to-do list get pushed aside in favor of other necessary tasks, such as meeting sales targets.

But the role of insight in decision-making after the transaction is extremely important, and the ability to do so is hindered if, for example, the two companies are not on the same accounting system, or if accounts receivable and Accounts Payable are not integrated. . When financial integration is delayed, it can cause a domino effect on other aspects of a business. Invoices may not be sent on time or there may be confusion with suppliers regarding payment issues.

It is also important to have up-to-date data for the entire company so that the management team can react to external situations that will inevitably arise. Maybe a competitor will take the opportunity to aggressively target your customers, or the sales team will start experiencing a slow sales pipeline and won’t know why. If the finance department allows itself to become the second priority in the post-merger integration, you won’t be able to provide the information that allows your company to make the necessary changes.

Take a measured risk

The M&A process can take months of time and effort, unbalancing everyone in a business and requiring a series of important and time-sensitive decisions. Although the element of risk cannot be fully mitigated, it can be minimized with insights provided by a company CFO. By watching for some of the ways they can unwittingly slow down or complicate the process, the CFO can circumvent these obstacles and move the process towards a positive outcome.

Frank Williamson is the CEO of Oaklyn Councila consulting firm that assists closely held businesses and not-for-profit organizations with mergers, acquisitions, capital raising, investor relations, succession and other strategic corporate decisions business financing.

Share.

Comments are closed.