Finance Integration
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Finance integration is always one of the key focus areas in capturing cost synergies. What are the key challenges have you encountered in merging the finance teams?
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Hello Boon,
Financial integration is a key area for defining and evaluating some of the most sought-after metrics in M&A; whether the merger has been a financial success or not.
Part of the reason why a large degree of mergers fail is the lack of a consistent approach applied by bidders, to defining and exploring synergies. This should be the enjoyable part of a merger process; post-acquisition, with a lot of the pre-deal stress done, the bidder and seller should ideally sit down together and look at the synergies they pre-envisaged, and which are being won / discovered already.
However, without a consistent and repeatable approach to defining synergies, the synergies can remain hidden / aloof, and this exercise can frustrate more than it is enjoyable. Both parties not expressing how they define ROI pre-deal, for example, or agreeing on a particular tax treatment strategy, can be quite frustrating and unnecessarily delay a the successful combination of both entities.
One key challenge I have observed in merging financial teams is merging the acquired team’s processes onto the parent team’s software system or ERP. Often it is underestimated the amount of time and resources it takes to do this. The integration lead must first figure out whether the parent team’s system can support the work of the acquiring team. If it cannot, then the lead must collaborate with IT to figure out what integration work is needed between the two systems. This can be costly and require additional time for development and testing. If the acquired company will move to the other system, then a transition and data migration plan is needed, which needs to be thoroughly planned out so as to prevent data loss during the process.
I have merged teams with different corporate calendars. The target’s financials had to be restated using the same cost/allocation methodology as the acquirer, also translating the fiscal quarters to the acquirer’s calendar. This was a lot of manual work but was done to better report Y/Y growth going forward.
Based on my personal experience, it is quite difficult to get synergies unless you adopt a common set of processes and systems. Finance is very absorbed with the responsibility around the close, that typically it takes them a month or two coming out of the close to put thoughtful planning around the integration. Also, targets don’t often share their policies and procedures until after the deal closes, making it difficult to plan. Training the target’s accounting staff on the acquiring company’s systems and processes may go slower than expected and may not succeed in bringing them up to speed quickly enough.
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