Sun has worked with client CFOs on many cross-border deals, and she says that if both the acquirer and the target are listed companies, the most challenging points for both parties immediately after the deal are purchase price allocation and financial reporting integration.
She explains: “The biggest challenges coalesce around the tight time line in order to fulfill the mandatory disclosure obligation, the limited resources available (manpower, data, etc.) due to the increase in non-routine processes, and the differences between each party (in terms of legal and regulatory issues, internal process, IT and so on). However, the savvy CFO will make sure they adopt a structured approach, with sufficient lead time, in any international transaction.”
Making synergy count
As a veteran of numerous acquisitions, Robin Wang, VP and CFO of Fosun Group, a Shanghai-based investment group, has become an expert in identifying and tracking synergies – often the stimulus for an acquisition, but notoriously difficult to measure, let alone achieve.
Acquisitions are central to Wang’s role at Fosun Group, and Fosun Pharma recently completed a US$1.2b deal to buy Gland Pharma in India. In that acquisition, as in others, identifying and achieving synergies was a key driver.
“Before we decide to go forward with a deal, we have to discuss synergy, and we look for that across a range of areas: innovation, technology, data exchange, collaboration and so on,” Wang explains. “Then we look at KPIs for the investment managers, so once the deal is done, we can monitor the synergies that are being created.”
Under Wang’s guidance, Fosun has introduced a detailed mechanism for monitoring and improving the synergy performance of every acquisition. While not every deal is a synergy play, “for the big deals, we’re always focused on them,” Wang says. “We’re trying to create an ecosystem rather than a conglomerate. That’s why synergy targets are important.”
Of course, Wang recognizes that achieving synergies – and the attendant long-term shareholder value – will largely depend on how well the acquirer integrates the target into the group. Neglecting the integration phase is a mistake many businesses have made, as Okerstrom points out.
“If one piece of the deal thesis involves benefits around integration, then you’d better be sure that you get your integration team involved in vetting the assumptions you’re making,” he says. “That way, when you close the deal, they can hit the ground running.”
Recent research from Harvard Business Review revealed that between 70% and 90% of mergers fail to realize the declared benefits post-deal. These sobering statistics support Okerstrom’s reflection that the worst deals are those that are either ill-conceived from the start, or, even worse, ill-conceived and then handed off to a team that has not been involved in the transaction. “When the CFO simply says, ‘Here, integrate this,’ it’ll end up being a difficult transaction,” he says.
That is especially true of cross-border acquisitions, where cultural differences can delay or even derail a successful integration. “Culture is a factor that has to be considered, especially when it involves the different habits and ways of those people involved in the business,” says Sun.
“For example, in China, there is normally no structured M&A process and limited upfront due diligence. Most Chinese companies do not have their own M&A teams. For the execution of the transaction, Chinese companies prefer exclusive negotiations and often struggle to comply with a tight auction timetable.
“If there is one golden rule for cross-border transactions,” she concludes, “I would say that trust, respect and open communication will make everything happen.”
The morning after
As Isaacs points out, whatever euphoria may accompany the successful completion of a deal, “at the end of the day, the executive is accountable to the board and shareholders for delivering on the plan. Once your advisers, banks and lawyers move off, the hard part begins. Despite all the due diligence you’ve done, there will be surprises that pop out.”
Given all that, discipline is key in the immediate aftermath of deal completion; the discipline to stick by the guiding principles that led to the deal in the first place and the discipline to remain focused on its success.
So, to achieve the best possible outcome, Woolworths insists on the formation of what Isaacs calls a “group transformation management unit” in order to bring governance to integration. “This body effectively manages all aspects of integration and synergies,” he explains. “We typically track that on a monthly basis and we then report to the board on synergy tracking every quarter.”
Wang has played a critical part in Fosun Group’s M&A-led growth strategy and has successfully compiled a balanced and diverse portfolio, from growing health care businesses in India to soccer clubs in the UK, famous resorts in France and Israeli cosmetics firms. Much of his role involves assessing the merits of his CFO counterparts at the target company to see whether their outlook and skill set will fit well with Fosun’s culture.
“I’m not a traditional CFO myself – I used to work for local government and a large accountancy firm,” he explains. “So I’m looking to work with different types of CFO. And we have so many different companies, we try to move away from simply stocking them with CFOs with the same skill sets. They might have business backgrounds rather than purely accounting or finance backgrounds, for instance.”
From Wang’s perspective, the most important thing to look at is the ability, and specifically the entrepreneurship, of the management team of the target. “That’s critical,” he says. “On every project, before we decide to buy or sell, our board members will meet the management team. I like to spend time talking to the CFO and CIO, and you have to rely on your sense of those people sometimes.”
Despite all the pressure of completing a deal and overseeing its successful integration, there are some personal benefits that may accrue for the CFO. Okerstrom certainly feels that working extensively on M&A has made him a better leader.
“Apart from the due diligence process and taking a critical look at other businesses, exposing yourself to different approaches and management styles broadens your horizons,” he reflects. “It sets what you’re doing within a broader context and allows you to get an assessment of your business from almost a higher plane, because you’re doing it with the benefit of the knowledge of what else is happening in the industry. Ultimately, I think it makes you a better CFO.”