A true sign of growth is when a company is ready to acquire competitors or strategic partners. An acquisition is usually an indication of healthy finances and an ambition for expansion. Wells Fargo even reported earlier this year that its corporate clients have expressed increased appetite for negotiating and carrying out acquisition deals.
As beneficial as acquisitions can be to an organization, it can be quite demanding in the responsibilities for a CFO. When mergers and acquisitions are often focused on the financial aspect of business, there are many details a CFO must manage with grace, concentration and insightful strategy. To avoid dropping the ball as the CFO in a company acquisition, consider these key factors in handling the nuances of the process. You will successfully bring a new entity into your organization if you take an acquisition step by step and remember the foundation of your role as a financial guide and manager.
Making the Deal
Even before an acquisition can begin, the CFO must determine if the company is financially able to make such a large-scale purchase and integrate new financial elements into the existing infrastructure. As the leader that monitors stakeholder value throughout a deal, the CFO should do the research to help avoid inadequate pre-close planning, inability to bridge organizational cultural differences and poor post-close execution. With these in mind, the CFO should be identifying, managing and mitigating as much risk as possible to increase stakeholder value and make the most of a deal.
CFOs hoping to make the best deal should approach each deal with a perspective of teamwork and realistic financial standards. As eBay CFO Bob Swan told the Wall Street Journal, “We, as a company, try to take others’ learnings (sic.) and incorporate them into making sure that we get deals right. We have a business model that generates significant cash-flows, and what investors are looking for us to do is take those cash-flows and that cash and redeploy it as effectively and as efficiently as possible.”
While finance is the CFO’s expertise, she also takes on the role of a partner who considers a deal from all angles, including marketing, HR and operations. This leads to more informed decision making and incorporates finances into a deal more inclusively. Addressing all risk and devising a comprehensive strategy can ensure all deals move forward clearly and efficiently.
Once a deal has been made, there will be many big and small logistics in the integration of two or more companies. It is critical the financial logistics don’t get grouped with other less important factors. This is where a CFO should be heavy-handed in his involvement. Merging assets and configuring a new business plan takes into account the profit and expenses of the acquired company.
A CFO must work with the pre-deal plan and all working capital data. Working capital adjustments take into consideration the delta between the sum of cash, inventory, accounts receivable and prepaid items minus accounts payable and accrued expenses. Measuring the old versus the new is an essential step before truly creating one cohesive financial plan. To create this plan CFOs will need to align management incentives, optimize tax strategy, and generally improve the approach to all operational systems and processes. Beginning with these basic and important factors sets them up for success in future areas of continued growth and financial optimization.
Acquisitions can be excellent for company profit and growth if executed correctly. The financial element of these processes can be complex without a competent CFO at the helm. As a role that takes on far more responsibility than strictly managing finances, the CFO is prepared with a broad overview of the company’s needs, strengths and weaknesses. This knowledge is crucial in considering and creating a successful acquisition.