Financial planning and analysis (FP&A) capabilities are essential when the pressure’s on to show results from ambitious transformation and value-creation goals. Rather than risk falling behind amid significant merger and acquisition (M&A) activity, CFOs can use transactions to catalyze change for their companies’ FP&A functions.
Many CFOs have an opportunity and an imperative to invest in bringing their companies’ FP&A capabilities to the next level, with nearly two-thirds (59%) of U.S. CEOs expecting their companies to pursue acquisitions in 2022, according to a recent EY CEO survey.
Driving FP&A improvement can be a logical part of rethinking how to effectively serve the new enterprise that results from a merger or initial public offering (IPO). For example, Kristin Johnson, senior director of global FP&A for Krispy Kreme, faced a tight timetable in preparing for its IPO amid disruption from the pandemic.
“I joined in May 2000, we went public in July, and we had to release earnings and give guidance for the first time publicly in August. A lot was coming at us, and we had to get comfortable with our forecasting,” said Johnson during a recent EY webcast.
CFOs can use a transaction event as a lens to focus on driving change in FP&A in three areas: getting the metrics right, investing in technology, and strengthening stakeholder communications.
Particularly with big deals, a company won’t be the same after completing the transaction. So, FP&A teams need to re-evaluate business drivers and make sure they’re using the right key performance indicators (KPIs) to inform decision-making.
The enterprise could have new business models, products, markets, geographies, technology, and other assets to manage. Those will require new metrics and a different approach beyond traditional reporting to produce better forecasting, forward-looking insight, and likely some new nonfinancial measures.
Additionally, as environmental, social, and governance (ESG) factors become increasingly important, the combined company will have to develop nonfinancial metrics to help provide the disclosures investors want. Those metrics might include:
Customer value – satisfaction, trust and loyalty, and brand value
People value – engagement, employee loyalty, leadership, diversity and inclusion, and health and wellness
Societal value – sustainability, total economic impact, carbon footprint, water consumption, and company ethics
Key points for CFOs:
Prepare to answer different questions from stakeholders on a range of metrics, such as customer demand, supply chain stability, capital allocation, and sustainability.
Establish which metrics will help the company achieve M&A synergy goals.
When a company goes public or grows through M&A, finance leaders can invest in advanced technology capabilities to help the FP&A team perform more sophisticated reporting, forecasting, and modeling. That can help CFOs achieve the top three technology priorities named in a recent EY survey: advanced and predictive analytics, cloud-based enterprise planning and forecasting, and artificial intelligence applications.
With enhanced technology, the FP&A team may have more relevant data and time to do better analysis, engage in next-generation planning and deliver more effective communications.
Key points for CFOs:
Identify data required to analyze whether the new enterprise is achieving its goals for cost savings, value creation, and other synergies.
Develop a plan to overcome fundamental issues regarding efficient data management and governance.
How do transformative deals change how company leaders talk about the business to the board, shareholders, analysts, and regulators?
Sharpening and shortening the message is critical, especially for executive communications, said David Kirshner, executive vice president, CFO, and chief transformation officer of Lifespan, a New England hospital system.
“When you’re in meetings, maybe you can spend five minutes on the right takeaways. If you throw thousands of numbers and charts at [people], the possibility of someone zoning out is high,” said Kirshner. “You want to make sure that your actual takeaway is driven home.”
Key points for CFOs:
Use storytelling and one or two impactful graphics and drill down to just a few lines of insights.
Build trusted partnerships and align messaging closely with investor relations and corporate development leaders.
FP&A transformation is a continuous evolution. By using an M&A or an IPO as a catalyst, a CFO can create a vision for FP&A that fits the future and build capabilities that help the company make smarter business decisions.
Bob Nannini is principal, corporate finance, and Lukas Hoebarth is principal, mergers and acquisitions, at Ernst & Young. The firm’s principal Chris Dente and senior manager Tamara Stebunova contributed.
The views expressed by the authors are not necessarily those of Ernst & Young LLP or other members of the global EY organization.