3 M&A Challenges in 2023: Capital, Technology, and Culture

M&A strategy is a big 2023 challenge; how should CFOs prioritize the obstacles they face?
3 M&A Challenges in 2023: Capital, Technology, and Culture
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A merger and acquisition (M&A) transaction is an intricate process that most growth-minded companies have in their tool belt as a potential expansion path. On top of managing the production and progress of lawyers, accountants, consultants, and investment bankers, executives must not forget the impacts on the human element of the businesses — the merging of labor forces, technology, and company cultures. 

CFOs looking to get the most out of M&A opportunities must keep their heads on a swivel, from focusing on collaboration with other executives throughout an M&A process to analyzing the state of companies and their industries through a constant M&A-inspired lens.

Many finance executives will be on at least one side of an M&A deal at some point this year. CFO spoke to experts on how to pull off a successful deal, despite the numerous uncertainties and hurdles executives face as a result of slowing economies. 

Overcoming Capital Issues

In what he referred to as a “draconian market,” Greg Martin, founder and managing director of Archer Venture Capital and liquidity solutions company Liquid Stock, noted that addressing access to capital issues is the initial step to putting a company in the best position to embrace this type of growth.

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   Greg Martin

“[A lack of capital] means conserving cash, reworking or refinancing debt obligations, reducing expenses, and focusing on projects that provide nearer-term cash-producing revenues,” said Martin.

“This has resulted in a lot of project cutting, mass layoffs, changes in operations like releasing expensive office leases, and generally operating in a much leaner manner than before. Metrics like employee efficiency or revenue per employee have overtaken growth metrics as the primary focus of managing the business,” Martin said.

If runway extension is challenging and ‘mothballing’ the business may create long-term impairment, CFOs must consider pushing for a sale of the company to preserve as much value as possible. — Greg Martin, Archer Venture Capital

When analyzing cash flow and profitability, Martin instructs CFOs to not only use M&A as a strategy for growth, but as a tool to overcome poor profitability, a cash flow crunch, and unsustainable revenue projections. “If runway extension is challenging, and ‘mothballing’ the business may create long-term impairment, CFOs must consider pushing for a sale of the company to preserve as much value as possible,” he said. “Companies need to consider the strategic fit of product into the incumbent’s as the key driver of M&A value.”

One thing sellers need to accept is that most “will never be able to justify their last-round valuation to a potential acquirer, either strategic or financial, so they have to accept a different valuation standard,” Martin said. “If there is a private equity alternative, companies need to show profitability or a quick path to profitability to garner any real attention among that class of buyers.”

Technology’s Role in Valuation

The impact of a company’s tech stack on its valuation is a new phenomenon in the M&A world. With the issues surrounding shelfware and SaaS sales processes, companies are not only looking for the best technology for their business; they are also looking for the latest technology to conduct the transaction itself. Gregg Albert, managing director of Accenture Strategy’s M&A practice, explained this trend.

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   Gregg Albert

“Historically, M&A deals haven’t leveraged technology to accelerate the end-to-end lifecycle — or it’s been applied on a one-off basis,” said Albert. “Half of CIOs, for instance, enter the deal cycle after diligence. But we see that changing, and deals are becoming more technology driven.”

“CFOs and other C-suite leaders are using digital tools to help track each part of a deal, from identifying a company as a target all the way to integration,” Albert said. “In addition, serial dealmakers are able to develop the ‘always on’ M&A operating model, which they use to be in a continuously ready state for [deals].”

Executive Collaboration and Combining Cultures

Regardless of the side of the transaction, an M&A deal can bring significant changes to every level of an organization. With this understanding, executives who wish to retain employees during and after an M&A transaction must be as transparent about the process as possible, Albert said.

“Effective CFOs generate buy-in among their colleagues and are transparent about the way they make decisions. They are strategic about how they shape, define, and communicate M&A intent, adjusting their approach depending on how their organization manages change,” Albert said.  “CFOs need to form strategic alliances across the C-suite to ensure a successful long-term blueprint for their deals.”

CFOs are ultimately a key player that helps create the glue for new teams to come together. — Gregg Albert, Accenture

CFOs must also prioritize collaboration across the C-suite to make the process easier for everyone.

“The chief technology officer and chief information officer are critical partners as more deals have technology underpinnings, and the chief human resources officer is important in retaining talent and preserving the culture within an organization,” Albert said. “CFOs are ultimately a key player that helps create the glue for new teams to come together.”

As for those outside the C-suite, the level of transparency doesn’t change for executives looking to retain talent, Albert said.

“CFOs need to build rapport with their organization’s people team to help preserve the culture and talent within an organization. There’s also value in engaging early and often with employees of the acquired company as this can lead to more effective integration, minimizing attrition and giving these employees a sense of involvement,” he said.