The merging of two companies can introduce tremendous anxiety among employees in the legacy enterprises’ Finance organizations. As the M&A deal moves forward, these employees may wonder, “How will our new company’s Finance function operate? Who will be in charge? Will I still have a job? If so, how and when will my responsibilities change?”
Such anxiety is understandable; the motivations and interests of a newly merged company’s Finance leadership and its employees can be disparate. The former are likely focused on realizing the valuable synergies promised by the merger, which often include reduced labor costs within the Finance function. The latter may be concentrating on job security. Add to such conflicting interests the pressure to continue meeting immediate Finance imperatives during the merger—generating reports, billing customers, paying vendors—and the anxiety can reach uncomfortable levels.
If the anxiety becomes paramount, Finance associates’ performance may suffer, and their commitment to the newly merged entity can waver. Some may leave in search of more stable and comfortable environments—taking critical knowledge and leadership skills with them. In a recent Accenture survey of serial acquirers, respondents cited “managing attrition of key people” as the fourth most challenging aspect of the M&A process.
Successful Finance function integrations require the knowledge and skills of the Finance workforces within both legacy companies. Therefore, it behooves Finance leaders to prioritize the needs of these workforces as they plan and execute the integration. Those who do so can improve their chances of ensuring that the newly merged enterprise ends up with a Finance “whole” that is more—not less—than the sum of its “parts.”
Spotlight on the resources stage
Our client experiences suggest that leaders of effective mergers and acquisitions carefully manage three stages of the Finance post merger integration (PMI) process.
They thoughtfully plan the integration of Finance. (Planning is the focus of the first point of view in Accenture’s three-part “Integrating Finance After a Merger” series.)
They actively strive to secure and align Finance resources during and after a merger. (Resources form the focus of this second point of view in the series.)
They develop a disciplined and long-term plan for implementation of their financial integration strategy. (Implementation is the focus of the series’ third point of view.)
The chapter “Ten critical success factors for Finance function integration” summarizes the practices associated with each of these stages in the Finance PMI process.
Clearly, management of Finance talent during M&A plays a central role in the success of the deal. We have found that the most effective companies master finance talent management by announcing the Finance leadership for the new company early in the M&A activity. They also identify key Finance people in both organizations quickly, assess the risk of their exit and work to minimize loss of essential talent through retention and backfill strategies. Finally, they appoint a full-time Finance integration lead and other full-time resources to support the integration effort with a clear governance path. In all three of these critical and interrelated success factors, change management and strong communication skills can prove particularly valuable.
In the sections that follow, we examine each of these human resource-related factors in greater detail.
Ten critical success factors for Finance function integration
1) Define the future-state operating model.
2) Assess potential synergies, and assign ownership and tracking responsibilities.
3) Establish the “must haves” for Day One.
4) Establish the “like to haves” for Day One–taking lead time into account.
5) Announce the Finance leadership for the new company.
6) Identify key people and the risk of their exit, and work to minimize loss.
7) Set full-time integrators in Finance to drive the process and deploy reliable resources as needed to backfill them in operating the daily aspects of Finance.
8) Set detailed, clear milestones and manage accordingly.
9) Work closely with IT for the Day One and future-state framework.
10) Build momentum for a larger transformation of Finance.
Announcing the Finance leadership for the new company
A newly merged enterprise’s Finance leadership team may include the CFO and his or her direct reports—such as the Corporate Controller, Treasurer, Business Unit and Regional Finance Leaders, Corporate Financial Planning & Analysis, Director of Tax and Director of Investor Relations.
In addition to determining the structure of this team and naming the individuals who will fill each of these roles, the acquiring company’s leadership will also want to decide where the legacy companies’ Finance functions will be consolidated and how the merged function will be structured (for example, a more centralized model or a more distributed model). Moreover, leadership will need to gain a sense of how many and which positions may be eliminated to capture cost synergies in the new company’s Finance function and when such positions will be eliminated.
Companies that make these decisions promptly before Day 1 and after announcement of the deal can avoid the emergence of a lack of leadership in the newly merged entity’s Finance function. A lack of leadership tends to fuel uncertainty and anxiety among employees, especially since key Finance leadership announcements can signal the direction of the future-state Finance organization. Organizations involved in mergers or acquisitions vary in how effectively they handle Finance leadership announcements. For example, one acquirer in the natural resources industry announced its leadership team down to the Director level on Day One of the integration effort. This company experienced minimal employee turnover and disruption. By contrast, a merger in the services sector delayed the Finance leadership announcement down to the Director level a few months into the integration effort. As a result, the enterprise endured some unanticipated employee turnover and disruption. Once the acquiring company’s leadership team makes these decisions, it can benefit by communicating them early and often to both legacy companies’ Finance organizations. We advise clients to communicate what they know, when they know it—repeating the communication at least three times—but not before such decisions are final. This approach can help prevent the proliferation and circulation of rumors among staff.
When making announcements about the direction of the new company’s Finance function, leaders would be prudent to repeat official communications across multiple channels. For example, an organization can release a formal announcement through email and follow it with an all-inclusive physical, video or conference call meeting that allows for dialogue and Q&A. After that, company newsletters or company intranet sites can be used to reinforce those same messages. The newsletters and intranet site can also be used to communicate Finance leadership changes; integration timelines; organization, process and technology decisions; and roles and responsibilities. By way of an example, in one merger of energy companies, Finance management conducted periodic road shows at various locations of the acquired company to impart critical information to employees.
Leaders can also support the merger’s success by striving for transparency where possible in communicating any final decisions regarding personnel changes. Such changes may include positions that have been made redundant, the timetable for elimination of such positions and whether employees will have an opportunity to apply for retained positions. Transparency helps Finance employees know what to expect. Clarity of expectations in turn keeps them focused on completing the daily operational tasks essential for supporting business as usual as well as handling any PMI-related responsibilities assigned to them. By contrast, lack of transparency can erode morale and productivity. In some unfortunate cases, employees learned that their jobs had been made redundant not by receiving any communication from leadership, but by stumbling across job postings on the company’s intranet site fitting their job descriptions.
Retaining key Finance employees
Losing the knowledge and skills embodied in talented Finance employees from the merged or acquired business can imperil the success of any M&A deal.
To avoid this painful scenario, leaders will want to develop strategies for retaining key Finance employees at all levels. They will need to implement these strategies effectively, starting with the most senior leaders and cascading through the organization as the program evolves. Retention of the CFO’s direct reports should be addressed in parallel with the initial Finance leadership announcement.
Planning may start with a baseline survey of the organization early in the process (post-deal announcement but before Day One) to ensure that every Finance employee is accounted for and to determine to whom they report. (Not every Finance employee necessarily reports to the Finance function.) This survey can also include a review of prior performance evaluations, to allow for analysis of additional dimensions of performance and contribution (or value).
Understanding the full population of employees can help leadership form answers to critical questions such as the following:
• “Which employees are our best and/or most promising performers?”
• “Which top performers are most at risk of leaving?”
• “What would best persuade top Finance talent to stay?”
• “Which employees would fit with the new entity’s organizational culture?”
• “Which individuals do we want to work full time on PMI-related efforts, and how will we backfill their normal daily activities?”
• “What mix of resources from the two legacy firms could help us integrate cultures and foster collaboration?”
• “Which Finance roles will be filled by current employees and which by new hires or contract workers?”
• “Which Finance employees have the critical knowledge of each legacy companies’ financial processes and systems and are critical for maintaining day-to-day operations?”
• “Which Finance employees have the critical knowledge of the people, processes and systems that will most likely compose the future state of the new entity’s Finance organization?”
• “What skills do we project a need for in the newly merged organization immediately, 3 years from now, 5 years from now?”
• “Which employees have these skills, or the potential to develop them, and what do we need to do to keep them?”
• “What types of training and development programs do we need to put in place to ensure we develop the skills we need?”
There are consequences for not tackling these questions. During a merger in the telecom industry, for example, the acquirer treated the merger very much as an acquisition—adopting its own organization, process and systems for the future-state. Finance leadership did not evaluate the other entity’s Finance talent to understand and assess their skills and knowledge early in the Day One planning process. Leadership therefore failed to gain an understanding of which employees from the other entity might be needed to execute the integration effectively. They also neglected to secure Finance talent for the future state.
As a result, leadership was caught in a reactive, catch-up mode during the integration when attrition in the acquired entity began to spike.
When leaders do take time to formulate answers to questions like those noted above, they can work with the human resources department to pull the right levers for retention of key individuals. For instance, financial incentives—such as cash or stock awards and gain sharing—can support such retention. For example, in an acquisition in which one food and beverage company acquired another, the acquiring entity identified the top 300 executives across the company that it wanted to retain and put together multi-year vesting pools to lock in their retention. This allowed for an orderly transition of critical senior leaders at the time of the new management’s choosing. Financial incentives may also become especially effective when tied to important milestones such as Day 1, Day 30 and Day 100 of the newly merged company.
Non-financial incentives, including extra paid time off or flexible work schedules, can give Finance employees additional reason to stay on board after the merger. As many acquiring companies have discovered firsthand, PMI efforts may all too easily become more than a full-time job, as disparate data, processes and systems across multiple geographic regions and businesses add complexity. Watching for and promptly addressing workloads to minimize exhaustion among these individuals can help them stay focused on their PMI responsibilities.
Regardless of the types of incentives offered, the acquiring company can also use non-compete clauses. These clauses may discourage high performers from leaving for competitors—and rival firms from successfully pursuing and poaching the best talent. The company can further support the merger’s success by ensuring that talent tapped for mid-level Finance leadership positions is engaged and committed before communicating these organizational changes to the broader Finance organization.
Appointing a full-time Finance integration team
Designating a full-time Finance integration lead and other full-time resources early in the M&A process (during due diligence if at all possible) and gaining their commitment can provide an acquiring company with a clear governance path for the PMI process.
Often selected from both organizations, Finance integration teams shoulder a number of key responsibilities, including:
• Defining process sub-teams to handle merger-enablement areas such as operating model changes; policy harmonization; process, data, reporting and technology integration; and change, communication and project management.
• Tracking realization of synergies, previously identified during the due diligence phase of the M&A process.
• Re-evaluating solutions if targeted synergies are not being achieved.
• Providing a clear line of sight to key decision makers in the organization to expedite PMI-related changes.
• Suggesting alterations of the new company’s operating model as needed to achieve incremental savings.
• Planning, designing and executing on Day 1 solutions within the Finance function.
• Defining the future-state operating model.
• Fostering collaboration among Finance and other functions within the new entity (such as HR, IT and Legal) and among business unit partners to facilitate changes called for by the PMI plan.
• Conducting Finance “town halls” to communicate organizational, personnel, operating model, technology and responsibility changes to employees and to report progress on the integration plan.
Finance integration teams need the ability to scale if they are going to deliver the horsepower required to drive the PMI process. A team’s size depends principally on the level of integration needed. Leaders will need to decide on the level of transformation using the context of the merger – a merger of equals lends itself to consolidation across more processes and requires more resources. Once the scope has been identified, it is beneficial to appoint a lead for each impacted function, adding team members depending on the effort required to integrate that process. That effort for a given Finance process will vary greatly by maturity of the process, and the companies’ industry. If consolidating, it may be required to at least bring a process from one company up to the proficiency level of the other. Furthermore, a process to be managed on an existing platform will be less costly than implementing something net new. Finally, a Finance process can play a critical role in some industries more than others, and therefore demand more attention. For example, the manufacturing industry puts focus on Inventory and Fixed Asset accounting, the telecom industry on its Order-to-Cash operations, and the financial services industry on Treasury operations. But regardless of scope, the team can benefit by having representation across all key areas of Finance, such as back-office processing, financial reporting, planning and analysis, and corporate functions (including Tax, Treasury and Investor Relations). From there, the sizing can be fine-tuned using a number of volume drivers, such as the number of general ledger accounts, legal entities, customers, and bank accounts. These factors are strongly correlated with a company’s measure of size, such as revenue or employee population.
To ensure that Finance integration team members have enough capacity to deliver on their considerable responsibilities, leaders may want to backfill their usual roles or re-balance their workload if needed. When backfilling, it is important to note that junior positions are more easily backfilled than senior ones. An approach we have seen companies take is to hire at the lower levels and encourage middle managers to take on stretch roles, freeing up resources to devote to the integration effort. During a merger between two services companies, for example, leaders developed a resource plan and tracked it at the program operating committee level to mitigate resource constraints early. They also implemented strategies such as partnering with a temporary contract agency. In addition, they identified capacity risks not only for the Finance-aligned team but also for business leaders who were key decision makers. Contrast this with the approach used during a media and entertainment company’s acquisitions. During these deals, leaders did not budget for an integration team. Instead, every resource had to be allocated using an alternate budget or by special request, which made resource planning difficult. While team members’ time and costs are allocated to future-state programs, leaders will need to consider how team members will be deployed once the Finance PMI process has been completed.
Proactively managing the transformation (or change)
Uncertainty and anxiety about how the Finance function of a newly merged enterprise will operate and whether jobs will be lost or changed can erode productivity and morale among Finance employees in both legacy organizations.
Acquirers that fail to manage the people challenges arising during integration of two Finance functions may lose vital institutional knowledge and key capabilities as well as leadership skills as anxious employees defect to competitors.
To ensure that the best talent fills the right roles needed to support successful Finance integration, savvy acquiring companies implement an effective change management program from the start. Proactively managing the various aspects of the change will help them convey the direction of the new entity’s Finance function to all those who will be affected, motivate top talent to stay on board and extract maximum strategic value from the Finance integration team.
All of this activity represents an enormous amount of work. However, it can pay large dividends in the form of a consolidated Finance function that helps the M&A deal deliver on its promised value.