Against the backdrop of technology-led disruption, businesses are increasingly looking to acquire, merge or partner with others to attain new capabilities, gain access to untapped markets and improve customer experience. 

Research has shown that many mergers and acquisitions (M&As) fail to meet expectations. While the vision is often clear, the way in which the CFO seeks to achieve it makes the critical difference between realising the value or not.

The CFO is fundamental to defining the approach to the deal and to ensuring that value is achieved across the organisation. According to PwC’s survey Orchestrating the deal, only 25% of CFOs and directors felt they could deliver good value in deals.

While the challenges of getting the deal right are not new, the risks of not addressing them are far greater for the modern-day CFO. There are a number of key actions that CFOs need to take to deliver deal value in the digitally enabled world.

The primary reason behind acquisitions is typically to achieve synergies. CFOs should focus the deal and business unit teams on identifying, qualifying, executing and tracking these synergies, creating consensus and accountability across the organisation.

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

Accessing data to a sufficient level of detail during the due diligence phase will always be a limiting factor in the M&A process. Adopting a mixed top-down and bottom-up approach will help with a comprehensive post-completion validation, execution and monitoring regime. ‘Day 1’ can be a springboard for delivering value, and clarify communications and the employee retention strategy.

The measurement of value drivers is particularly challenging. Being able to use structured and unstructured data will help, including with insights into operational effectiveness and cost-base, as will learning more about the customers, products and security of revenues.

The demands on the finance function can be significant. Often the volume of tactical activity that is needed to control an acquisition can be significant.

The lack of robust and timely financial and non-financial information in suitable formats can be one of the most destablising issues in the 100-day post-deal integration plan. It is vital to systemise reporting in the new environment, build on the work undertaken in the diligence phase, ensure alignment in definitions, and prioritise reporting needs and timelines. CFOs should consider how analytics technology and data can be used effectively to address system issues before longer term solutions can be developed.  

The CFO needs to ensure operating procedures that are established from the outset can be replicated and sustained throughout the integration process. This should help with efficiency around processes and provide clarity over the impact of any headcount reductions. It’s also important to coordinate the integration of support functions, ensuring key IT, HR, legal and tax dependencies are fully understood.

The CFO is among those responsible for ensuring the value commitments made pre-deal are achieved. So they need to take the lead in transforming the finance function. This should be the final step in the M&A process.

There is huge value to be gained from establishing a clear end-to-end action plan. CFOs should establish an operating model for finance to inform decisions and activities from ‘Day 1’. The deal is also an opportunity to re-think the use of technology and review legacy systems.  

A centralised process and tools for monitoring, tracking and reporting the deal synergies is essential. It will enable the digitally agile CFO to make declarations with confidence. The most sophisticated processes not only track high-level metrics but also tie the integration milestones into the value creation targets identified at the start. This helps management identify where in future synergies are likely to be on/off track.

Jamie Lyon, head of corporate sector for ACCA, in collaboration with Brian Furness and Ben Cox of PwC, and Jens Madrian, CFO/COO of Reactive Technologies

This is an extract from The role of the modern day finance function in integrating an acquisition, the third in a series of quarterly articles by PwC and ACCA.