The role of the CFO in successful M&A

By David Carrick, CFO, Apex Group

In the first quarter of 2022, worldwide M&A activity soared past the one trillion-dollar milestone for the seventh consecutive quarter, evidence of the fact that business leaders are continuing to seek growth via acquisition.

At Apex Group, we’ve made and successfully integrated over 25 acquisitions in the last four years, transforming our business and accelerating growth to over 9,000 employees in over 80 offices. You could say that successfully sourcing, executing, and integrating acquisitions has become something of a specialty.

A McKinsey survey of 200 global CFOs found that cost and revenue efficiency targets in deals were much more likely to be met when the CFO was closely involved in the process. Over 75% of companies where the CFO was very involved reported their cost targets were achieved, compared with less than half when the CFO wasn’t involved at all. The finance function, with its unique analytical skill set and data fluency, is well positioned to ensure acquisition success.

However, this is possible only if the finance team plays an active role throughout the entire course of the deal process and integration. Every deal has its unique attributes but here we share some of our insights into the evolving role the CFO and the finance team should play throughout a deal process, and the skillsets needed to overcome any potential hurdles.

1. Pre-Acquisition: Strategy

In our experience, while the CEO will be the driving force of making an M&A deal happen, a CFO can share many of the key responsibilities and should be brought into decision-making in the early stages of the process.

M&A is sometimes seen as the fastest way to achieve a range of business goals, such as acquiring a client base, new technology or expand into a new geography. But the decision to acquire another company must by strategic and support your long-term business objectives. Before discussions about an acquisition can even begin, a CFO must be one of the first to determine whether the proposed deal is worth the potential financial and operational risks.

A CFO should outline a list of financial requirements and benchmarks that stakeholders must understand and commit to before negotiations can begin. To create this baseline and then ensure that it can be met upon deal completion, the finance team must assess the potential synergies and create various forecasts and scenarios.

While corporate development often prepares the synergy projections and develops the deal model, the CFO’s team should sense-check and calibrate them. CFOs and their teams are uniquely qualified to project a value-creation strategy which is ambitious but realistic and tangible for other stakeholders.

1. Due Diligence

In a ‘hot’ or competitive deal environment, as we are currently seeing, it can be easy to fall into the trap of overpaying for assets and in haste to make an offer, cut corners on aspects of due diligence which can cause problems further down the line. Due diligence should be a non-negotiable part of the M&A process, for both parties.

The CFO and their team are the ultimate due diligence mechanism for M&A. Whether buying or selling, it is their job to vet the other company to ensure that the financials stack up and support the specialist legal teams and advisors in identifying potential pitfalls.

At Apex, our acquisition strategy, whilst flexible enough to accommodate opportunistic situations, remains laser focussed on only acquiring quality businesses which add a specific product, technology or geography for our clients. We remain disciplined on our due diligence processes.

Those operating in the M&A market should not be swept away by the overwhelmingly positive sentiment – discipline is key. Competition for good quality assets has never been higher, and buyers and their advisers must remain focused and prepared to walk away if necessary, when due diligence suggests they are asking for an inflated valuation or the existence of overhanging regulatory concerns.

1. Integration

Once the deal has been struck, the acquirors ultimate goal is to derive as much value from the deal as possible by integrating the acquired company strategically and efficiently. The CFO’s role here will be predominantly focused on integrating the finance function’s team, technology systems and processes.

Finance leaders should be open and receptive to acquisitions which can bring different ways of looking at finance processes – continuous improvement is key, and the acquired teams can bring a fresh, ‘outside in’ view. This can help resource, shape and evolve the finance function as the company scales, adding new ways of doing things, as well as providing access to new technologies and approaches.

Finance should be present on cross-functional integration teams with HR and IT, so relationship building becomes a key competency. Keeping the board, executive committee or investors regularly informed on integration progress and successes, further establishes the CFO as steward of the organization’s assets.

Conclusion

The CFO can play a critical role in driving and securing M&A success for their business. With their in-depth understanding of both the company’s financial and operational targets, CFOs can help acquisitions to meet the strategic goals of the company. A finance leader’s involvement from pre-acquisition to due diligence and integration phases can be crucial to the eventual outcome of the transaction. Successfully doing this facilitates strategic growth, drives greater value creation through M&A and disposes influential stakeholders such as the board and investors to support future acquisitions.