Cross-functional collaboration is very important in M&A, and there are several reasons why. First off, the finance is in charge of all aspects of the [profit and loss statement] as well as balance sheet. So when you’re looking at all the different functions, whether that be [human resources], tax, supply chain, procurement, legal, everything that they do impacts the financial statements.
So it’s very important that we have our hands [on the pulse of] what all the other groups are doing, because if we don’t, and we’re not working in concert with them there, we can end up with surprises on the back end around some of the things of how they’re structuring their transaction.
Secondly, what is important, also, to have good collaboration with them, is to figure out if we are hearing something from our finance individuals at the target, we want to make sure that the HR, the supply chain team, the sales team is hearing the same things from their counterparts. Because if they’re not, that means there’s a gap. And if that, we’ve got to figure out how to overcome that gap if that’s just misinformation on the target side, or potentially, is that something bigger that we need to go investigate harder?
So it’s very important that we have collaboration amongst all of our teams when we’re doing due diligence to make sure that, 1. We’re all on the same page, and 2. Help us understand the due diligence and confirm what we’re hearing.
So I think finance’s role in overall due diligence is a company-to-company-specific theme. I know in my company it is very, very important. Finance plays a very heavy hand in figuring out, right? Because at overall, when you talk about due diligence, you’re trying to basically confirm a price to pay and a value to the company.
So the value of this acquisition to your company, you’ve probably set a benchmark, and then you’re trying to figure out a price to pay. Hopefully the price is less than the value. Those are all financial metrics. So if you’re saying that—because you don’t want to do a deal—and there’s all these studies about doing unsuccessful deals—you want to make sure that you understand your price and you understand your value, and that you—that you’re going to clear those hurdles, and you’re going to clear them with sailing—flying colours.
And that’s finance’s role, right? To do those modellings, to do those DCFs, to have those conversations, to make sure that everyone is in concert, and you really feel good about the valuation and how—the price you’re paying coming out of doing a deal.