January 22, 2024 | 4-minute read (696 words)
More than a ‘finance guy’, new-age CFOs are making a company’s financial decisions with vision and strategic skills. Gone are the days when the CFO’s (chief financial officer) purview was just finance.
Their tasks and responsibilities have expanded in the recent decade. They are now working with C-suite peers, line managers, investors, and boards to focus on performance, growth, and other capabilities instead of just numbers.
One of the various critical tasks this financial leader must handle is mergers and acquisitions (M&A). The CFO is crucial to a successful deal, whether target valuation, identification of financial synergies, or post-transaction integration.
This article examines the CFO’s role in ensuring companies capture the most value from M&A transactions.
1. Assessment and evaluation of the target
Successful M&A goes beyond completing a deal; it involves determining the suitability of the target company. Before initiating acquisition discussions, a CFO, acting as one of the primary analysts, helps determine if the proposed deal is worth the risk. Key considerations in this regard include alignment with long-term goals and vision, smooth integration into the corporate structure, realization of synergies, cultural fit, and stakeholder enthusiasm.
2. Creating a transaction plan
After the deal is deemed fit by the leadership, their next task is to justify it to the board and other key stakeholders. In this regard, the CFO plays an essential role by undertaking the following:
- Performing due diligence.
- Establishing the financial criteria for Internal Rate of Return (IRR) and timelines for Earnings Per Share (EPS).
- Planning for acquisition financing and budgeting.
- Providing minimum benchmarks for stakeholders.
- Assessing for potential synergies.
- Creating financial forecasts and scenarios.
- Involving critical leaders in ongoing discussions.
- Devising a transaction plan to pitch to the board.
3. Devising post-close integration plan
As the end of a transaction nears, the CFO works toward creating a comprehensive post-close integration plan. The aim is to outline a detailed roadmap for the first 100 days so that both firms can work together to set the partnership up for success. In drafting the integration plan, the CFO works extensively with departments to:
- Define a vision for the future of the finance function, factoring in the necessary structural and cultural changes.
- Define performance management and metrics.
- Design incentive rewards.
- Designate duties and responsibilities for carrying out the plan.
4. Negotiations and closing
The CFO’s role in this stage transforms into chief negotiator. Their ultimate goal is to maximize synergies, minimize risks, and realize the total value of a transaction. In that regard, a CFO may assist by:
- Supporting the CEO in strategic negotiations, including the final price and other transaction details.
- Facilitating discussions about the financial and strategic trade-offs.
- Preparing all relevant financial and compliance documents.
- Communicating regularly with the counterpart on the other deal team and providing necessary information, data, and documents.
- Establishing a due diligence schedule to align both parties.
5. Post-deal integration
One of the most common reasons for an M&A deal falling short of expected ROI often stems from the inability to bridge cultural differences between organizations and poor post-close execution. In either regard, a CFO is crucial in mitigating such issues and facilitating seamless integration and operational efficiency. This entails taking the following steps:
- Implementing the integration plan.
- Stimulating and driving the timely execution of change in the finance function or the enterprise.
- Communicating the deal outcomes and the expectations for the newly formed company.
- Planning a pivot for a system that fails to deliver expected results.
- Holding training workshops for the merged company to align people and practices with the organizational direction.
Drive better M&A outcomes with outsourced CFO solutions
Whether you’re on the sell or buy side, M&A transactions have countless complicated, moving parts that require a unique set of resources and skills. Engaging an outsourced CFO with the right expertise and experience to manage complex and fast-paced M&A integrations can help you capture the most value from a deal.
Want to know more about outsourcing CFO services? Early Growth’s FinOps services offer time with an experienced CFO to help you and your company make informed business decisions. Talk to an expert today.