5 ways CFOs can ensure M&A deal value in a volatile market

Amidst rising inflation and interest rates, stock market volatility and geopolitical instability, high-value investment opportunities like mergers and acquisitions may sound out of reach.

Given the uncertain market landscape, the pressure is on for CFOs to continue to accelerate the successful closing of M&A deals already in progress and to carefully consider any M&A prospects in the pipeline. M&A deals are notoriously complex and protracted, and the longer they take to close, the higher the risks of losing deal value.

Understanding common types

All M&A deal types, especially those involving highly complex carve-outs and integrations or both, offer the potential for substantial value creation. But they equally carry a significant risk of disruption to business performance.

Additional challenges to overcome include technology hurdles, such as integrating enterprise resource planning systems and boundary applications, aligning policies, and smoothing cultural differences between organizations. CFOs, finance teams, and legal and compliance experts from multiple corporate entities need to continuously address and navigate these complex challenges from deal start to close.

Overcome barriers

Here are five steps that will help overcome barriers to delivering speed to insight, speed to transform, and speed to execute pre- and post-close.

1. Select M&A deal partners that can execute a complete solution. Too many specialists and extensive handovers can lead to a jigsaw puzzle of PowerPoints and consultant recommendations. Look for partners that can help in the short and the long term, who can turn recommendations into outcomes, data into action, and plans into completion. Look for end-to-end partners who will work with the organization to align owners, help with the delivery, build the solutions, and execute them.
2. Use technology solutions that complement rather than replace. For example, data lakes and systems of engagement enable interaction with data outside of core systems, helping to create the ability to drive insight to action and decreasing the impact of underlying complexity and fragmentation. That reduces the need for risky and disruptive full replacements.
3. Adopt business support-as-a-service. Business support-as-a-service allows for faster and greater scale and expansion, eliminating the need to continually recruit in-house team members. It has the advantage of speed and breadth of activity, as well as managing costs and outcomes. This approach will also ensure that design and execution are not worlds apart.
4. Minimize the need for lengthy, inflexible transition service agreements. These seller agreements to provide ongoing business activities related to the sold asset for a specific period often cannot be amended to support modifications, such as changing reporting or bringing in a new system. The more quickly an organization can stand alone and get away from transition service agreements, the more it is in charge of its own destiny.
5. Hit value levers early. Planning inertia often creates a period of inactivity before gains are realized. Develop a set of shorter-term return goals and ensure these are delivered, again, using partners that can execute and help mitigate the constraints on business resources and enable faster overall achievement of objectives. Accessing data, negotiating new contracts, reducing revenue leakage, and improving working capital positions can all help drive immediate benefits and help fund other projects in the business and deliver value in the nearer term.

Adapted from: “5 Ways CFOs Can Ensure M&A Deal Value in a Volatile Market”, by Stephen Mortimer, global M&A practice leader at Genpact, published on CFO News on 19 September 2022.