Aligned for growth: Reporting on post-deal success
The importance of timely planning
Despite nine out of 10 finance leaders surveyed feeling that they had a clear post-deal accounting and finance integration strategy, many respondents experienced major or minor issues with their financial reporting, management reporting and budgeting and forecasting integration or PPA.
The timing of when plans were developed impacted the success of accounting and finance integration.
Accounting and finance integration: impact of late planning
• The timing of when plans were developed impacted the success of accounting and finance integration. Surprisingly, almost two in five participants (39%) said they started planning for post-deal accounting and finance integration after deal completion.
• A quarter of companies that started planning at or after deal completion (late planners) experienced major unexpected issues in management reporting, compared with 10% of those starting before deal completion (timely planners). Similarly, late planners were more than twice as likely to experience major unexpected issues with budgeting and forecasting integration than timely planners.
Late planners were much more likely to be surprised by:
- Difficulty gathering information for financial statement disclosures
- Inconsistent management accounting policies and practices across the target’s business units or geographies
- A lack of adequate management reporting processes at the target
- The inability of the target to produce timely forecast or budget information
- Inconsistent financial information across the acquiree’s business units or geographies
Rapidly understanding financial and management reporting processes of the acquired business, and integrating those into the acquirer’s own, is a critical success factor for many finance functions.
Not doing so will restrict the organization’s ability to track performance, measure synergies, deliver robust financial information to stakeholders and, in some cases, slow down potential post-deal capital-raising activities. Our survey results demonstrate that up-front planning by an experienced team can help to mitigate such risks.
Late planning increases external reporting risks
Late planning worsens aspects of financial reporting integration. Among respondents who experienced issues in this area, 78% of late planners had difficulty gathering information for financial statement disclosures, compared with 52% of early planners.
Late planners were also more likely to encounter unexpected GAAP or accounting policy differences with the acquired company. Among respondents experiencing unexpected issues in financial reporting integration, 47% of late planners encountered unexpected GAAP or accounting policy differences, compared with 32% of those who began planning before deal completion.
Although the survey indicates fewer issues related to the accounting for PPAs than some other areas of post-deal accounting, 50% of late planners were surprised by the impact of such adjustments on the post-close profit and loss, compared with 41% of timely planners.
Similarly, late planners were more likely to suffer difficulties with incomplete PPA reports. Having an early understanding of the impacts that purchase accounting might have on ongoing results is important in order to avoid surprises and maintain confidence of stakeholders.
We find companies most seasoned in M&A activity devote attention to GAAP and accounting policy matters as a part of pre-deal due diligence, and confirm and resolve such differences before the first reporting period after the completed transaction.
Such practices reduce the risk of necessary accounting policy and practice alignment negatively impacting reported results in future reporting periods, which could affect management credibility with key stakeholders.