Do-It-Yourself M&A

Companies should limit their reliance on consultants when executing mergers, says the CFO of Thomson Reuters.
David McCannMarch 10, 2010

Consolidating two companies after a merger may require liberal use of consultants for integrating systems, evaluating human capital, and other crucial tasks. But finance chiefs shouldn’t let consultants do too much, even if the companies in question are multibillion-dollar businesses.

That’s the advice of Robert Daleo, CFO of Thomson Reuters, the $13 billion financial-information giant formed in 2008 by the merger of Thomson Financial Services and Reuters. Daleo explained his views on the role of consultants in mergers during a presentation at the CFO Rising conference in Orlando on Tuesday. At the beginning of a merger effort, “the consultants have the knowledge and you have the money,” said Daleo. But if you’re not careful, “at the end they will have both.” Instead of letting the consultants do the work for you, view them as educators, he advised: “Give them the money and gain the knowledge.”

For example, Thomson Reuters insists that its own staff act as point people on new platforms rolled out as part of its continuing systems-integration process, while third parties provide guidance and also help out with maintenance on existing platforms. “We’ve done a lot of acquisitions, and this is very important,” said Daleo.

Also important in a merger is to quickly identify the most important tasks among the “million things you need to do” and put everything else aside, said Daleo. For Thomson Financial’s finance department, the top priority was getting Reuters on Thomson’s SAP enterprise resource planning system, which had just recently been implemented. The company prepares financials under both U.S. and Canadian generally accepted accounting principles as well as international financial reporting standards, and “the last thing we wanted was a financial Tower of Babel from trying to do the reporting on different systems,” he said.

To accomplish that objective as soon as possible, some corners were cut. “Did we get it exactly right? No,” said Daleo. “But we said, let’s get it as right as it can be, and we’ll fix it later.” Indeed, the first phase of the SAP implementation at Reuters actually began before the April 2008 closing of the acquisition, and by August 2008 Reuters was up and running on the system.

No matter how great the organizational strain of a merger, under no circumstances allow customer service to be compromised, warned Daleo. In fact, the level of attention paid to customers actually should be increased, to make doubly sure they don’t come to regret your business decision, “which would be a terrible thing,” he said.

And whatever opportunities an acquisition may bring, don’t let the business strategy trump the capital strategy. The two are equally important, according to Daleo. In Thomson Financial’s case, it funded the Reuters deal half in stock and half from the all-cash sale of its largest operating unit, Thomson Learning, to private-equity investors.

Daleo noted that the finance department was heavily involved in not only planning the acquisition but also integrating it. That meant providing discipline and analysis to managers of the company’s businesses. There were literally hundreds of internal projects that grew out of the deal, said Daleo, and for each one there was a cash-flow audit, a specific amount of capital committed, and a firm time line for completion. Thanks in part to such rigor, he said, Thomson Reuters has identified $1.6 billion in savings from combining the two companies that will be realized by the end of 2011.