Whether you’re buying or selling a company, your chief financial officer (CFO) is often your deal’s linchpin. An M&A’s success or failure — from deal negotiations to postmerger integration — is inextricably linked to the CFO’s performance. But if your CFO is like most, he or she already has more than enough to do without adding time-consuming M&A responsibilities. So it’s important to consider how you can maximize the time and talents of your CFO while minimizing possible distractions.
Plateful of duties
Owners, CEOs or boards of directors usually make the final decisions about mergers, from deciding to pursue a deal to approving price and terms. A CFO, on the other hand, should act as a nexus of M&A planning, negotiation and execution. In some cases CFOs play a strategic role; however, in most their key roles include the following duties:
Evaluating viability. Buy-side CFOs assess the risk of a potential deal, its potential costs and the possible share price impact. Sell-side CFOs evaluate competing bids and run analyses of potential deals.
Finding the money. If an acquisition requires outside financing or liquidation of the selling company’s assets to raise capital, the CFO is responsible.
Managing due diligence. CFOs usually supervise due diligence efforts — preparing for scrutiny on the sell-side and conducting financial, legal and operational review on the buy-side.
Integrating the companies. Integration encompasses merger of financial, human resources, IT and other functions — and there’s plenty of room for error at this stage. CFOs may need to oversee everything from severance packages to real estate obligations.
Acting as counterweight
One of a CFO’s critical duties is to perform a “reality check” on management’s strategic assumptions. A CFO informs executives about whether a deal is sound from a financial perspective or whether it appears to be too costly or could potentially reduce return on equity. Sometimes, it’s difficult to dissuade enthusiastic owners and CEOs, but if a deal has the potential to cause harm, CFOs must make the argument succinctly and persuasively.
A great deal of analysis typically goes into such positions. CFOs should map out worst-case scenarios. They might, for example, test various client relationship, supply chain, employee retention and morale factors. If required to come up with deal financing, CFOs should compare loan costs and possibly find alternative financing options.
Once a deal is underway, CFOs normally act as coordinators, making sure that everyone knows what’s going on and what they’re supposed to be doing. If a snag develops during negotiations, CFOs usually untangle them.
This job is made easier by setting clear goals. CFOs should choose performance metrics carefully at the beginning of the process so that the deal runs according to schedule. Proper metrics also enable buyers to judge whether an acquisition is performing to expectations. If a decision made before the deal closed doesn’t deliver expected results — such as to reduce headcount or discontinue products — the CFO usually is on the hook.
It should be clear that CFOs carry a heavy load during the typical M&A transaction. How should one person be expected to fulfill all of these duties and perform their usual job as head of your company’s financial function?
Consider temporarily shifting your CFO’s duties so that he or she can concentrate exclusively on deal negotiations. You might, for instance, assign deputies to run day-to-day financial operations or shift some of the work to department managers. Your CEO could assume additional management tasks. Also encourage your CFO to delegate as appropriate. While this individual needs access to pertinent details, your CFO probably won’t have time to micromanage areas such as IT reconciliation when there’s so much else at stake.
Protect your key player
Probably no other executive’s performance is so central to your transaction’s success as your CFO’s, so it’s essential that he or she understand what will be expected. It’s also critical that you support and protect this vital player.
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