July 10, 2024
Written by Apliqo FP&A Team

Don’t underestimate the amount of preparation required for an M&A transaction

In this article, we’re going to delve into what this preparation looks like and hopefully, by showing the scope and scale of what is needed, we can help CFOs and their teams to better understand how much work actually needs to happen before they sit down at the negotiation table.

Financial preparation

Let’s start with the most obvious one – financial preparation. It’s clear that having your historical financials in good shape is the starting point for any successful transaction because these articulate the financial health, strength, and legacy of your organisation. You want to be able to show potential acquirers that your strong controls and processes can be relied upon and that the story you’re telling about the value of the company is backed by real data.

Getting this right is a continuous process as you seek to inculcate FP&A excellence throughout your company. It requires sophisticated technology, sufficient training, attention to detail, effective system design, regular audits, clarity in terms of reporting structures, and much more. All of these contribute to clear historical financials that accurately represent how the company has performed.

Much of this work will go unnoticed and underappreciated, but it remains absolutely critical. An acquirer, when looking through your financials, is searching for anomalies, uncertainties, and items that break the patterns of their assumptions. The more effort you’ve put into your financial preparation, the better your chance of finding those early and crafting solutions that don’t slow the progress of the transaction.

Operational preparation

Often the synergies expected in M&A transactions are uncovered when a company’s operations are scrutinised. It’s here where small optimisations and changes can make a significant difference to key drivers – and often that is where the complementary skills and resources of both parties can deliver value. As such, it’s extremely valuable if you have comprehensive documentation on your operational workflows that serve as the foundation for these investigations.

Not only does this help you to better understand the unique challenges and bottlenecks in your own processes, but it also offers transparency to external parties – helping to build trust and show competencies that add intangible value to your overall valuation. But none of this happens on its own. It takes a lot of effort to drill down into how things are done and compile the evidence-based data that enables operational storytelling.

You need to be prepared for this because it can make or break a deal. Your technology needs to support this by capturing, processing, and analysing the data that your operations are generating as well as the metadata about how the operations are performing themselves. With sufficient sophistication, this can act as a strong pillar in your sales story, showing the acquirer that it’s not simply assets that they’re getting, but also tried-and-tested operational workflows that can help them deliver on the promises made in the forecasts.

Cultural preparation

Perhaps the most ignored piece of M&A preparation is company culture integration – and it is often a silent killer that breaks down trust and slows down deal progress. Your company culture is an entrenched set of values, attitudes, and beliefs that unite your staff and your management team. It is built through a combination of top-down control and bottom-up environment – and it can be difficult to shift once there is a critical mass. Therefore, when you are merging with or being acquired by another company, you have to be prepared for the inevitable culture clash that will occur.

Preparing for this requires social engineering – because you’re dealing with humans who, typically, are resistant to change. Your job as a management team is to find bridges of connection, points of agreement, and common understandings to help two cultures combine and arrive at a new homeostasis. Equally, you are also looking for spheres of conflict that might need to be addressed so that the integration happens smoothly.

This is not something that you can leave to chance. It needs to be thoughtfully explored, discussed, and planned for so that your people can make the adjustments that they need to make.

Technological preparation

Every company builds a unique technology stack that helps them to deliver their offering as efficiently and effectively as possible. And as a company matures, it develops an increasingly intricate set of solutions that work together to cover the broad range of requirements that a modern company contends with.

In an M&A transaction, it would be ideal to combine both technology stacks so as to arrive at a single integrated and unified system that can act as the single source of truth. However, this is much easier said than done. Legacy systems are notoriously difficult to remove or switch out, and so a lot of work needs to be done in advance if you want to achieve this. Both teams need to work together to understand the other’s perspective, and then a plan needs to be put in place regarding what gets replaced, integrated, removed, or added in order to serve the needs of the new combined entity.

Even though this can be a tedious process, it also offers an opportunity for a fresh slate – to release the shackles of the past and envision a new future that leverages today’s cutting-edge technology. Here at Apliqo, we can play that role as our solutions are fine-tuned for dealing with complexity. Built on the strong foundations of IBM Planning Analytics (TM1), we are confident that our systems can handle anything that an M&A transaction can throw at us. And we’ll walk every step of the way with you as you start to action the integration.

Integration preparation

Lastly, you need to plan the exact action steps that are going to take place when a transaction is concluded. Taking the insights gleaned from the preparation mentioned above, you need to work together and craft a clear plan for how these two entities are going to become one. It’s natural to think that the negotiation and signing of the deal is the end of the journey because it represents the natural end of the M&A process, but experienced practitioners will tell you that that couldn’t be farther from the truth.

Here are some examples of questions that need to be considered:

What are you going to do on day 1?
How will you communicate the outcome of the transaction?
What change management will need to happen and who will carry it out?
What metrics are you going to use to measure the success of the deal?
What will the combined technology stack look like?
How will you handle overlapping roles and responsibilities?
How will you manage any potential disruptions to business operations?
What retention strategies will you use to keep key talent?
What cybersecurity measures need to be put in place?
What training and development will be required for staff members (both old and new)?

As you can see, there is a lot to think about and the earlier you can do this preparation the better. The more effort you put in upfront, the smoother the integration process can happen, and the quicker you can start to realise the gains that you were hoping for from the deal.

Apliqo has a full set of solutions that offer financial and operational preparation capabilities for M&A transactions and beyond. If you’d like to see what this could mean in your context, get in touch today. We’d love to connect and see how we can help.