Acquiring another company to get access to new customers, products or technologies can be one of the most critical decisions a business owner can make. Fortunately, your CFO is in a unique position to contribute significantly to the merger and acquisition (M&A) transaction process and, eventually, influence the success of the deal.
A CFO is required to carry out a wide range of tasks, from corporate strategy and board engagement to obtaining financing and reporting to stakeholders. However, M&A work can be more complex today than ever before, so it's essential to have a specialized team member who can handle the due diligence required of these transactions.
Hiring a full-time, in-house CFO with experience in deal-making can be costly, in addition to being rarely needed for a regular company, since these skills are relevant only for a short amount of time.
A cost-effective solution is to outsource this work to a CFO who has deal-making capabilities, as you'll end up paying only for the period and tasks needed. This person requires no training as they are an expert in deal-making, and can set your company up for the most successful deal possible.
So if you are trying to acquire smaller companies for growth or raise capital, or you're looking to sell your business, an outsourced CFO can help you at every stage of the deal process.
Creating the Transaction Plan
Before an M&A deal can be finalized, the CFO must carry out extensive due diligence in order to solidify the rationale behind expected outcomes. They need to consider financial questions about pricing expectations, risk and value add. And since they should be able to communicate the overall vision for the deal to all stakeholders, one that aligns with your company's bottom line, the CFO will have to conduct research that's both qualitative and quantitative in nature at this early stage.
To maximize financial efficiency, the CFO must provide minimum benchmarks that the stakeholders both understand and agree with before entering into a negotiation. Hence, the next steps before a deal can take place involve setting up financial requirements for earnings per share (EPS) timelines, the internal rate of return (IRR), and basic planning for acquisition financing.
After due diligence has been completed, the Outsourced CFO turns into chief negotiator, ensuring that your business achieves the best possible outcome.
Since both the buyer and seller want to maximize synergy to ensure they're getting the most a deal can financially offer, it's essential at this stage that both parties maintain open communication about acquisition conditions, growth potential, and other financial targets that will make the merger or acquisition a success.
Next, once the negotiations advance and the transaction come to a close, the CFO will need to create a comprehensive integration plan. To build this, they will have to work with all departments to define design incentives and performance metrics, as well as appointing those who will be responsible for carrying out the plan.
Integrating for Operational Efficiency
To successfully integrate two companies and their cultures, the CFO must have an informed perspective on the values, the transformation opportunities, synergies, and the potential cultural pitfalls so they can be ready for anything.
Apart from this, once the deal is closed, the CFO also needs to come up with a way to monitor the progress of the acquisition. If a system developed during the planning phase doesn't deliver the expected results, the CFO must be able to figure out the problems and also be ready with other possible ideas and solutions. This is where choosing the right performance metrics early on comes into play - you can't reflect and pivot if you aren't able to measure what's wrong with the system.
Effectively integrating one company into another and aligning practices can be challenging. To make the transition smooth, an outsourced CFO might hold training workshops for the new company to ensure that all staff members are aware of and understand the new goals and to present ways of working toward them. For this, the CFO can choose (after consulting with you) to explain the reasons and results of the deal and the expectations for the newly-formed entity.
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