4 Key Considerations for Finance During an M&A Process
2021 could prove to be one of the biggest years for M&A as we see a rapid surge of activity across all industries. But it is crucial that the Office of Finance is prepared for the work that an M&A process brings.
In 2020, COVID-19 halted nearly all in-progress M&A plans organizations had in favor of focusing on the massive shift to remote work, cash liquidity, and any other aspects that would keep their businesses functioning. In the second half of the year, the M&A market had begun its recovery, setting the foundation for favorable market conditions for M&A in the next year. And 2021 has already proved to be far different than previous years in terms of M&A activity.
“All the elements are there for an active M&A market in 2021, from corporations looking for scale and growth to private equity firms and SPACs looking to invest capital.” – Rob Kindler, Global Head of M&A at Morgan Stanley
In fact, the market has not only recovered, but is seeing a growth of activity far beyond the historical norm.
This surge in activity for 2021 means that finance and accounting teams must brace themselves (and their processes) for the work that comes with an M&A process.
The Office of Finance can make a significant impact on the success or failure of a merger or acquisition, so it is important that the entire staff and financial processes be prepared to support the overall goals of the M&A event.
Challenges for the Office of Finance During Global M&A
There are several challenges the Office of Finance must prepare for in order to ensure a successful M&A:
- Comprehensively assessing close processes: It’s important to figure out how all close processes will consolidate. Are these processes standardized? Do they operate with legacy tools such as spreadsheets, or do they have an automated close solution?
- Addressing reporting requirements: If the organization is now subject to new regulations, it’s important to find out how to state the financials and to prepare finance processes.
- Integrating ERPs and other systems: It’s very uncommon for identical systems to be in place at the time of M&A, so it’s up to the Office of Finance to figure out how to effectively integrate and consolidate the various Systems of Record that are being used.
- Keeping the future in mind: How does finance and accounting address all these challenges, among others, without compromising the vision behind the M&A in the first place? It’s important to prepare and consolidate financial processes, but it’s equally, if not more, important to evaluate how to surpass the goals driving the M&A event.
4 Key Steps to Control and Streamline the Financial Close After Global M&A
#1: Evaluate Relevant Business History
The close process is often complicated enough, especially when manual processes are still in place. If an organization undergoes an M&A event when the Office of Finance is already struggling with the financial close, that event can be extremely disruptive, and can even create operational problems. Having a checklist in place, especially a controls checklist, is extremely valuable during this process.
It is also crucial that the acquiring organization factors in one of the most valuable resources of the acquired organization: people. M&A events can cause friction in the staff of the acquired company, which results in exits and a loss of institutional knowledge. Though it’s important to move past institutional knowledge as a main pillar for the functionality of the Record to Report process, it’s imperative that the acquiring company gathers all relevant knowledge of financial processes in order to successfully consolidate and streamline them moving forward.
#2: Align Global Activities
A key focus for finance during the M&A process is figuring out how to prevent further complicating an already complex process. However, there are many new factors to consider, such as varying tax and statutory filing requirements for different countries or regions the organization hasn’t previously had to consider. The organization also has to figure out how to support a bigger team in terms of communication or close activities.
Another valuable question to ask: how can the organization leverage technology during the M&A process? If the Office of Finance is trying to support M&A activity through manual processes, they are missing an opportunity to allow technology to help streamline the process by identifying bottlenecks and exposing high-risk areas in ways that manual processes can’t.
#3: Establish Business Continuity
Business continuity during an M&A process is especially crucial. The acquiring entity must be able to access all data while performing the Record to Report and be enabled to measure operational performance. There also might be new ERP instances or vendors that the organizations have to consolidate, so the Office of Finance will need to learn how to continue the Record to Report process in the midst of other activity.
#4: Update Compliance Activities
Updating and establishing relevant control activities is vital to the success of the M&A event. One company might have an extensive control framework in place, but what happens if the other doesn’t? The Record to Report process still has to be executed, and the organization has to ensure that proper controls are designed, established and working. If there is a control failure, the organization has to prove there is a remediation process set up.
Manual processes are perhaps one of the biggest risk factors during an M&A event, especially because an M&A only increases scrutiny on the organization. Syril Mathai, CPA and VP of Strategic Solutions for Trintech, discusses the extensive risk that manual processes introduce during the M&A process and how that risk impacts everyone in the organization:
Organizations must move away from manual processes and leverage technology in order to perform financial processes the right way, the first time. This is how the M&A event will be as successful as possible.
M&A is an important strategic event that accelerates growth and has the ability to elevate the organization’s position in the market. The Office of Finance must ensure that the event is successful by preparing the Record to Report for success. Discover more tips for addressing the complexity of an M&A event to achieve organizational success.
Written by: Ashton Mathai