CFOs are uniquely positioned to contribute significantly during the M&A process and, ultimately, influence the success of the deal. From the identification of a target through to post-close execution, CFOs typically monitor shareholder value before, during and after a deal.
But while numerous reports have identified many of the reasons for disappointing results, few have identified solutions. With Servest having garnered much success in the M&A world, we talked with CFO Phil Morris to find out the skills finance teams would need and what curveballs could be thrown their way.
(1) First of all, what role would the CFO play in the M&A process
The M&A process can considerably vary depending on the nature of the acquisition in question. The CFOs role can, therefore, fluctuate between heavy to light involvement. Theres not a one-size-fits-all model for each and every M&A but, for the most part, the process includes assessing the funding landscape, conducting due diligence investigations, negotiating with all relevant stakeholders and establishing, nurturing and maintaining an open dialogue between parties.
A CFOs main responsibility is ensuring there is adequate funding available to deliver the acquisition in the first instance. The due diligence enquiries, concerning the financial, commercial and cultural aspects of a business, are a very important part of the process. CFOs have to work closely with their advisers to ensure they know everything about the business theyre acquiring, so there are no doubts that it is a suitable fit and reflects the necessary quality.
Once the decision has been made to buy the business, there follows a mountain of legal paperwork to go through with a fine-tooth comb. At that point, further negotiation may become necessary before the Sale and Purchase Agreement (SPA) is finalised. Throughout the process, which on average lasts around six months, the CFO tends to be involved in lots of meetings and discussions, to make sure everyone is on board with the decision.
Read more about M&A deals:
- Essential tips to execute an M&A deal with a manufacturing firm
- Asian businesses offer strong M&A opportunities for British companies
- How to avoid an M&A nightmare
(2)In your experience, what are the top skills required of CFOs to successfully navigate M&A activity
In terms of hard skills, CFOs need broad financial knowledge and experience in M&A processes. They also should possess legal acumen, as well as a keen eye for detail, because theyre responsible for checking through contracts and validating the information contained within the abundance of paperwork that will accompany any M&A. Project management skills are also important, as CFOs will have to look after multiple streams throughout the process.
In terms of softer skills, patience in M&A is most definitely a virtue because it can be a long and arduous process. CFOs also need an element of tenacity and determination to drive the best outcome for the business. Part of this requires exemplary negotiation and people skills, as well as the ability to adapt and make quick decisions to maintain a smooth process.
(3) How did you acquire these skills
I acquired these skills over years and years of practise! My background is in accounting and corporate finance and, when I moved into the commercial world from practice, my focus was purely on M&A. I believe that sort of grounding is essential; you really do need a solid foundation before you embark on such projects, because you move from advising on others investments to spending your own money! Here at Servest, we have high quality leadership development courses on offer, which go some way to helping acquire and enhance those hard and soft skills. But, otherwise, it really is a case of learning as you go and applying what you know.
Read on to find out how best to mitigate risk.
(4) What curveballs can an M&A deal throw at you that even an experienced CFO might not be prepared for
It doesnt matter how many people youve dealt with in the past, the fact remains that we are all very different… so Id say the biggest curveball is dealing with difficult individuals. Regardless of the personalities you may have encountered in your career so far, you have to find a way to effectively interact with a range of people; which sometimes means putting differences aside. You also have to be mindful of the fact that you have to sometimes tread the line between professional and personal, because selling a business is an emotive exercise; as is acquiring one.
Both parties have a lot at stake and it’s important to remove personal feelings from the equation in order to think professionally and laterally about the decisions ahead. Otherwise you risk suffering from what we call “deal fever” when you’re essentially blinded by excitement and unable to fully rationalise each and every step you take.
The due diligence exercise can also throw up surprises and you have to be able to react to them as appropriate to ensure that you are acquiring what you think you are, whether that be by amending the terms of the deal or, in extreme cases, considering pulling out altogether.
(5) How would you go about best mitigating the risk inherent in any deal
The best way to mitigate risk is to spend a considerable amount of time getting to know the people who will be affected by the acquisition that means regularly meeting up with the management team (that will hopefully be coming across into the group) in order to understand them on an individual level. It also means getting a sense of the wider capability, drivers and the culture. When two businesses merge, it’s imperative that the culture is in sync. People drive culture so, before any decisions are made, make sure you’re all on the same page.
Once everyone has bought into the plans, you have to spend time on the mundane, logistical things to ensure that the contracts and legal agreements are watertight. This involves engaging others in order to collectively pre-empt potential issues and address the ways to approach certain situations that may arise. Everything absolutely everything – has to be considered upfront because you dont want any surprises.
(6) In what ways can CFOs use their involvement in M&A activity to both further and shape their organisations overall strategy
Its important to have an awareness of the companys overall strategy before seeking out or committing to M&As. Successful acquisitions can help build a presence where one is lacking. They can also further develop the quieter sides of the business, particularly relevant for service providers that have a multi service line offering. In these cases, CFOs can effectively direct the business towards carefully considered M&A targets; but you can only do so by knowing which opportunities to seriously look at and consider.
(7) How do you go about maintaining culture following M&As
You have to get in there quickly and, to put it plainly, really be on it in terms of people ethos. For Servest, FM is primarily about people and the seamless provision of services; so these values are part and parcel of our culture. However, when we acquire a new business, we are very quick to ensure that the new people entering the group understand our overall philosophy, concerning everything from employee engagement to health and wellbeing at work.
You have to make it easy so people can buy into the character of the organisation. In addition, you have to openly recognise and respect the strengths that the new business brings to the wider group. Maintaining both sets of culture, together, makes for a stronger proposition.
Meanwhile, supply chain diagnostics may not be the words you want to hear, but realising its importance and understanding the mechanics within the due diligence process can help deliver an 80 per cent more chance of success in M&A.
