The Finance function as the key to successful transactions

Overview of the study

You have assessed the influence of the Finance function on overall deal success. Why is it that you consider Finance to be the main driver for a successful transaction?

Claude Fuhrer: From an operational perspective, there are a variety of factors driving the success of Mergers & Acquisitions, as is usually the case in a transaction environment. In our study, we focused on the Finance function as one of the central hubs of a business responsible for collecting and distributing pivotal pieces of information. Therefore, integrating the Finance function at all stages of the transaction – from planning to long-term monitoring of processes – is the key to realizing synergies.

In your study you also looked at the factors adding to the complexity of an Integration or Carve-out of the Finance function. What are your findings regarding that issue?

Fuhrer: We detected that there are often delays or complications if businesses fail to implement a clear methodology for the Integration or Carve-out of the Finance function. Relying on a clear method helps organizations to identify important activities and milestones, contributing to the success of a transaction. Furthermore, many businesses have difficulties with project governance. As an example, they fail to define clear responsibilities and tend to neglect organizational activities in general because they are too focused on core topics. Client-specific factors such as cultural and regional aspects determine the complexity of those issues, which is why there is no general approach that fits every project.

Finally, businesses often struggle with creating project transparency for all the involved parties. Generally, the project team should be aligning to the same central pieces of information to promote coordination.  This is a major prerequisite to be able to collaborate across functions and keep an eye on the big picture. Here, the Finance function is well equipped to take on the role of a central coordinating function for the project, thereby influencing the outcome of the overall deal.

How do you support Finance and the CFO during projects so that they can reach their targets and contribute to achieving the desired Return on Investment (ROI), also with regards to quantification of the impacts of the COVID-19 crisis?

Fuhrer: The ROI mainly depends on both the short and long-term value creation measures of a transaction. So, the first step is to identify and realize synergies at an early stage and define short and long-term measures. In order to set appropriate goals, it makes sense to look at the peer group. As an example, organizational and cost benchmarks can be quite useful for formulating both ambitious and realistic goals. Businesses will find this information helpful when gathering information, developing the future Finance Target Operating Model, prioritizing topics, and more generally when implementing any number of topics on the way to achieving their goals.

In your analysis you looked at Private Equity investors and portfolio companies separately from corporates. What was the reason for this approach? 

Fuhrer: For PE investors and portfolio companies, transactions often face different challenges. For one, there is usually no complete integration of the Finance function if the PE investor does not pursue a "buy and build" strategy. This is because of the different strategic approach of financial investors compared to corporates. Accordingly, the acquisition by a PE company requires completely different requirements of a portfolio company. These are determined by the new investors and, depending on the financing structure, the banks. Thus, the focus here is often on the adjusted management reporting including regular cash flow forecasting as well as the identification of potentials for cost savings and optimization of the operational business.