Well before the ink is dry on any acquisition document, the astute CFO will know that one size does not fit all when it comes to delivering on the expected value of the transaction. But one element is true in all cases: proactive planning for a smooth close and first 100 days is the first step.
That’s because a finance chief needs to be armed with the knowledge and information that come from having a plan in place early. In that way, the CFO can line up the resources and support that will help deliver on the plan’s primary objectives.
From the first day following the deal, senior executives must move the transaction through the change in control without any of the operational disruptions that can hurt the existing value of the combining businesses. Then they must navigate through responses from competitors and avoid execution problems in the first 100 days or so after an acquisition while they deliver the deal’s synergies.
Because each deal is different, checklists are a good tool to help teams accelerate initial progress and make sure standard items are not missed. But those checklists must be augmented with transaction-specific considerations.
In that respect, it’s crucial that the CFO has a solid understanding of the rationale behind the deal to be able to validate its worth and adequately prepare for the integration. The finance chief needs to have a firm grasp of the deal’s tax implications, earnings, and working capital trends, for example.
If the acquisition was strategic — capturing and integrating synergies with a supplier or former competitor with a new product offering, for instance — integration is more critical. Acquiring corporations seldom sell a company they’ve acquired strategically. The business may not have received the attention it needed over the years, and additional capital may be needed to make it competitive with peers.
The concerns of a financial buyer, such as a private-equity fund, are often similar. Here, while the goal usually centers on improving the operations of the target company so that the buyer can capitalize on its investment fairly quickly, PE buyers, like strategic buyers, often seek to identify and address opportunities to improve the business in both the first 100 days (short term) and the longer term.
There are at least four general types of opportunities for strategic and PE buyers:
- Near-term opportunities to better align management incentive plans, optimize tax strategy, and generally improve operational systems and processes.
- Enhancements to free cash flows, including working capital improvement initiatives, profitability and pricing enhancements, and cost-elimination programs.
- Strategic growth initiatives, such as developing long-term plans to increase market share.
- Improvements to management of the business, including monitoring and managing key profitability and cash-flow drivers.
Whatever the rationale behind the acquisition, the CFO must be able to oversee the process and delegate to make sure it goes as smoothly as possible. Critical paths at this point are accounting, business, and information-technology integration.
If the acquirer and the acquisition use different accounting standards, the CFO must take the lead in determining which is the most appropriate and harmonizing them so that financial information can be reported. This process can be quite challenging if one is under generally accepted accounting principles and the other, for instance, is an offshore acquisition that operates under international financial reporting standards.
Different systems also pose large obstacles in IT. The CFO and chief information officer must work closely to design the future operating model and decide whether a transitional service agreement is needed in the interim. Such an agreement would allow time to prepare the systems if the target company is large enough that it can’t be brought easily and quickly into the buyer’s established network.
From a business perspective, the number of employees who will come aboard or be retained — and retrained — is a key question. Can the acquirer use its own resources to aid this transition, or must it go outside for assistance?
CFOs have been taking on increasing operating responsibility for many years. Indeed, their role in helping to deliver successful transactions is another such responsibility — and a critical one in ensuring that deals generate their intended value and strategic objectives.
Keats Aiken is a partner and Steven Miller is a principal at KPMG Transactions and Restructuring Advisory. The opinions expressed in this article are those of the authors and not necessarily those of KPMG LLP.