While corporate development teams build the deal model and synergy projections, the finance team should pressure-test and calibrate plans.
Global corporations have continued to show a strong appetite for acquisitions in the last several years, and 2020 is likely to be no different. More than half of companies (61%) said they expect the mergers-and-acquisitions market to improve in the next 12 months, according to the April 2020 EY Global Capital Confidence Barometer (CCB).
It is less clear that buyers will realize the value they expect from those acquisitions. According to Ernst & Young LLP (EY) research, about 50% of global executives said their most recent acquisition achieved lower synergies than initially intended.
The finance function, with a data-driven, analytical and holistic view of the organization, is meaningfully positioned to increase acquisition success. However, this is possible only if it harvests synergies across the organization over the entire course of integration. Below are three practices that CFOs can deploy that work well during transactions.
1. Drive for an aspirational, yet tangible, deal thesis
CFOs are typically brought into decision-making on potential acquisitions in the early stages of target screening and selection. However, they often delegate the value-creation analysis of a deal to corporate development and commercial functions while focusing on financial diligence and funding structures.
CFOs and their teams, however, can help make the value-creation strategy both more aspirational and tangible at the same time. From an aspirational perspective, CFOs — particularly given their detailed understanding of cost structures — can push the deal team to aim higher by planning larger transformational and value-focused initiatives in the target or combined organization.
At the same time, through their knowledge of financial data, they can better assess goals and synergies that could be effectively measured — and thus managed and achieved — and those that cannot. While corporate development typically prepares the synergy projections and develops the deal model, the CFO’s team should pressure-test and calibrate them. It takes both vision and realism to select accretive deals that can materialize.