Finance priorities for post-merger integration

Many deals stumble during the post-merger integration (PMI) phase because of a lack of planning, a tardy focus on PMI, or an underestimation of the time and budget needed to complete the integration, among other things.

Karim Elmorsi, founder and partner of askme Partners, a PMI consultancy in Amsterdam, classifies these catastrophes as “post-murder integration” because deals can die if acquirers don’t adequately plan and execute PMI. One of the biggest mistakes corporate leaders make, he noted, is “thinking you are buying a company that you can just plug in.”

So that raises the question: What should finance heads be doing to ensure their company’s deal is a success? And what should be their top priorities during a time that is not only exciting but also chaotic and messy?

CFOs and other finance executives, of course, bear much of the weight of M&A from day one. They help identify acquisition targets and take a seat at the deal-making table. They analyze potential synergies and growth strategies and determine how their company can financially meld with another and succeed. They are immersed in due diligence and ensuring that the target company is properly valued. The list goes on.

But after the deal closes, things get tricky. Finance leaders must assemble their team. They must be aware of local regulations to avoid hiccups. And they must adopt universal financial procedures for their newly merged entity so that everything runs smoothly and deal value is achieved.

“It’s quite difficult to get synergies unless you adopt a common set of processes and systems,” noted Oksana Kukurudza, managing director of Accenture’s finance and risk practice in New York. Trouble is, she added, “Finance is very absorbed with the responsibility around the close, that typically it takes them a month or two coming out of the close to put thoughtful planning around the integration.”

What’s more, targets don’t often share their policies and procedures until after the deal closes, making it difficult to plan, said Jana Mercereau, head of human capital M&A, Great Britain, for Willis Towers Watson in London. And that means a rush after the deal to get things in order.

Despite these challenges, finance can help steer their companies through an effective and profitable integration. These PMI experts outline the top priorities to make this happen:

Keep the lights on

Deals are distracting, so first and foremost, focus on continuing to run the finance side of the business. “Set up an interim finance operating and governance model to enable finance to continue to support operations,” Kukurudza said. Ensure that suppliers are paid and customers are billed and that external reporting requirements are met.

“Keep the ship steady despite the press that is hitting the news and despite head-hunters calling your leadership team,” advised Mercereau. “Taking your eye off the ball — that’s a risk.”

Integrate the finance and operations teams

Plan your finance function structure prior to close if possible. Then, recognize and retain top employees, and determine who will do what post-deal. “Develop a target operating model of governance, organization, processes, and systems that will achieve the finance synergy target with key talent identified early,” Kukurudza noted. In addition, know whom you want to tap as your finance PMI head.

Be a leader

Once you restructure the finance department, bring your employees together around a common goal. “Leadership is one of the things that is often absent in post-merger integration,” Elmorsi noted. “Understand that it is people who make the numbers happen. Rally them around a common vision of the future.”

Drive and track synergies

In addition, take a leadership role around corporate synergies. Pinpoint key cost and revenue synergies across your organization, set metric targets, and “cascade them down to the departments and business units,” Kukurudza said. Then, entrench these targets into your company’s future plans and budgets, and establish a “synergy tracking mechanism” that can help determine if you are on course. “Be ready to have something structurally in place to manage synergy achievements,” she advised. “And don’t allow the enterprise to lose focus on synergy achievement post-deal.”

Also, be aware of hidden costs that may surface after the deal closes. Make sure company managers present accurate budgets and that they have included as much data as possible so there are no surprises later, Mercereau noted.

Make friends with the CIO — early

A collaboration between finance and IT is vital, yet it is often an afterthought to other large tasks that need to be done. Finance relies on data to help make decisions, gain insights, and improve business performance, and technical glitches or interruptions can occur when one company melds with another. So visit the chief information officer early in the process to join forces. “IT needs to be a business partner with finance from the very beginning, when finance is planning its post-merger integration,” Kukurudza said.

Set milestones

Determine what you want to achieve in one month, two months, or further out, often in conjunction with other departments. “Your milestones will formulate how you will communicate your strategy,” Mercereau said. Set target dates for things like integrating the workforce, consolidating facilities, and establishing synergies, and ensure that the synergies are measurable. “Achievement of those milestones will determine the ability to achieve those synergy targets,” Kukurudza noted.

Know what you are buying — and speak up

Finance leads are integral to the PMI team, not only to help steer the ship, but to recognize when things are off track. “They are not driving the team, but they should be strong enough to put on the brakes or redirect the course based on financial insights,” Elmorsi said. “It is important that finance truly understand the nature of the business and the operating model before the deal is done, to avoid surprises. This is especially important when evaluating companies that offer and operate different products and services than your own company. The impact of different operating models can be significant on your financial systems and overall business case.”

About the author

Cheryl Meyer is a freelance writer based in California.

To comment on this article or to suggest an idea for another article, contact Drew Adamek, a JofA senior editor, at Andrew.Adamek@aicpa-cima.com.

AICPA resources

Articles

• “10 Reasons Why Deals Disappoint,” FM magazine, Oct. 23, 2019
• “How to Avoid Being Blindsided in M&A,” FM magazine, Sept. 12, 2019
• “Getting Started With Post-Merger Integration,” FM magazine, July 23, 2019
• “After the Merger: Creating a Culture of Success,” JofA, Dec. 2018
• “How to Successfully Integrate Mergers and Acquisitions,” FM magazine, Feb. 2018