Begin integration planning early
Planning the merger only after the deal has been struck is a dangerous
strategy. The more planning that takes place before the deal is finalised, the
better the results will be.
‘Don’t start change post-acquisition,’ warns John Berney, director of CIO
Plus. ‘Plan before you buy: it’s the fundamental element behind successful M
Put together a 90-day plan, mark out reference points to ensure the plan
moves forward and objectives are achieved. Ensuring buy-in from the board is
vital to success.
Most FDs think the hard work is done when the deal has been signed and
sealed, but forget that they have usually had a raft of advisers to help them
put together robust due diligence. ‘They forget that it’s an emotional process,
and FDs take on a lot of the burden,’ says Brian Livingston, head of M&A at
Smith and Williamson. ‘Due diligence doesn’t really assist you going forward.
Sometimes they underestimate the challenge’
After acquisition, FDs should consider using advisers to help them, either as
part of an integration team, or even hiring interim managers while they continue
to focus on merger issues.
Think beyond commercial
Most merger failures are not down to commercial failures, but to a lack of
Entrepreneurial businesses often acquire larger corporates, where decisions
are not made as quickly as in fast-moving small companies.
On the other hand, large businesses buy smaller companies for the exciting
IPO, but this can be quite literally lost in the crush, suggests Livingston.
‘One director told me, “We are an elephant that buys butterflies, loses them,
then notices that we’ve squashed them.”‘
People go to companies to grow. Learn from the other team.
The acquisitive company must communicate its vision of the merged business
and what it will achieve as early as possible. ‘Tell them what you’re going to
do to them and with them. Tell them from day one. You can make change if you
tell people upfront,’ says Berney.
Livingston agrees. ‘Communicate your vision early. Don’t drip drip
information through.’ He says another mistake is ‘taking the lowest common
denominator’. In other words, doing things that offer the least offence to the
FDs also have the responsibility of managing their own team – usually more
closely than other directors.
Financial systems must be controlled as soon as possible, which means the FD
must think about the role of the department. Is it just a data silo or does it
help to grow the business? Thinking about what is required from the two accounts
departments will influence redundancies in a department that is traditionally
one of the first targets for rationalisation. ‘If you remove people you should
only have one go at it,’ says Livingston.
He suggests looking at the qualities of the acquired business’s finance
function, considering its skill sets and what use they could be going forward.
The longer you take to make these decisions, the more risk that the businesses
will operate in a ‘vacuum’, with staff not working effectively because they are
unsure of what is going to happen to them.
Think about your IT
Finance directors are not just senior business people helping out in the
merger and acquisitions process.
Their role, first and foremost, is to produce meaningful and fundamental
business data, on which decisions are made. Bringing together two businesses
requires both sets of information to be made available in a format palatable to
the board, as soon as possible after the companies have been brought together.
FDs must consider what the merged business’s system requirements are. Can
either of their existing IT systems meet those needs?
‘Companies should speak to their IT suppliers about which system will work,’
advises Mark Holland, head of IT advisory services at Baker Tilly. ‘It can even
be done during the pre-purchase due diligence phase.’
There is always the option of running two systems if integration won’t bring
For acquisitive businesses there is always the thorny topic of outsourcing,
which provides flexibility to a company.
FDs should also think about consolidating existing IT licensing agreements,
but beware. An acquired company might not have been so diligent at licensing its
software, and this is not necessarily picked up in due diligence if not
‘A merger may bring hardware and software savings through economies of scale,
but it can be a double-edged sword if they have messed up the licensing,’ says
The radical option
The other option, which is clean but more brutal and controversial, is to
replace all the acquired teams with your own. But beware, as there are numerous
employment law responsibilities a company faces before making mass redundancies.
Holland adds that outsourcing opens the business up to a broader range of
skills. ‘But once again, it’s an issue you have to think of in advance of the
deal,’ he says.
The Financial Reporting Council has issued guidance regarding the annual reporting of 1,200 large and smaller listed companies. The letter highlighted the key issues and improvements that can be made in the 2016 reporting season
Baldwins Accountancy Group has continued investment in the north-east and appointed David Fish as a director in its corporate finance team
UK M&A activity bounced back strongly in July and August, according to analysis by the deals practice at PwC.
Smith & Williamson has added Jim Clark and Philip Marsden, of Marsden Clark Corporate Finance Limited, to its corporate finance team.