Financial executives are putting their 2023 plans into action, comprised of a variety of different strategies. One that should make a comeback? Despite a recent slump in M&A, new Deloitte research suggests a majority of financial teams are planning on conducting some form of acquisition over the next twelve months.
In a survey conducted in Oct. 2022 of over 1,700 professionals involved in M&A for their organizations, nearly two-thirds (63%) said their companies are preparing for an M&A deal this year.
Growth expectations via M&A are high according to survey findings, which report more than half (52%) of companies expect to execute up to five deals. The ambition to acquire is capped, however, with only 10% of respondents telling Deloitte that they expected more than five deals over the next twelve months.
“Although there has been slowdown in the market in general, there will always be opportunities for growth,” said Laurin Parthemos, principal at Kotter, a management consulting firm. “The excessive amount of change and nuance within industries across the board means that in order to get an advantage over competitors and remain agile, an M&A transaction might be the best option for organic expansion.”
“If you want to be successful in this dynamic environment, you need to grow,” Parthemos said.
“The difference we’ve seen in the marketplace over the past year is the type of deals being funded. People are no longer supporting moonshot transactions. Today’s deals are going to be more strategic with a lot of due diligence to make sure it’s a strong merger or acquisition that can be profitable sooner rather than later,” she said.
M&A provides an exclusive opportunity to consider how to add value via the target’s technology. The technology organizations acquire is a major part of the value that justifies the acquisition. Findings indicate organizations that conducted an M&A transaction had significant enhancements to multiple aspects of their organization’s major core processes.
Over a fifth (21.2%) of respondents said tech enhancements around analytics took place post-merger, while another fifth (21.1%) reported tech improvements in their ERP modernizations. Another 16% reported that they saw the implementation of advanced technologies in their workflows thanks to an M&A deal.
But context is key. “How are decisions made within the company? What makes this an effective target company? Can this company operate separately, or does it need to be fully engrained into our existing one? Leverage the identified assets as soon as possible because it will help move the integration process along,” Parthemos said.
“If it’s not viable to integrate quickly, it’s likely not worth the purchase in the current economic environment,” she said.
When asked about the corresponding challenges that a finance and accounting team face, respondents were split on what areas of the transaction pose the biggest pain point for finance teams going into 2023.
The largest portion — just over a quarter (28%) of respondents — said manual or outdated business practices are the biggest challenges for accounting teams, while a slightly less amount (26%) attributed a lack of talent in the respective teams as their biggest hurdle. Another quarter (25%) of respondents said disparate or outdated technology systems in the accounting and financial process were the greatest challenge over the next twelve months.
With overall innovation undoubtedly on the minds of teams who are purchasing other companies in an effort to expand, a large majority of those surveyed reported their organizations undergoing these types of efforts as a result of the M&A process. Over two-thirds (68%) of respondents said their companies are undertaking financial transformation efforts as a direct result of an M&A transaction.
“From a CFO perspective, finding ways to actually quantify culture into a KPI that you can add to your checklist of whether this is a viable transaction is critical,” said Parthemos.
“You’ll likely see questions around whether the financials make sense, and what senior leadership is saying about their organization, but target companies are looking to be sold for a reason. Find a way to come up with a rubric that incorporates how people operate in an organization,” she said.