There seems to always be news about mergers and acquisitions (M&A) activities of some kind that rocks the world. In 2017, it was Amazon’s $13B acquisition of Whole Foods — a prime example of the growing influence of e-commerce over traditional retail. Disney also acquired 20th Century Fox from for $52B to the delight of Marvel fans. Last year also saw consolidation in the ERP space, with Oracle buying NetSuite and Sage buying Intacct. In 2018, M&A will likely be abuzz with Broadcom’s takeover bid for Qualcomm, which may be well over $100B when all is said and done. The complexity of these corporate joinings are surely going to take years to shake out.
Smaller M&A activities are organizational challenges as well. There are some best practices for how CFOs and controllers can make any merger or acquisition a little smoother and financially compliant. Even good M&A decisions can be undone with poor execution.
This article provides five tips for companies that spin-off business units, acquire new subsidiaries, or operate legally incorporated entities in different countries.
1. Consolidate systems to bring in multi-entity financial technologies.
No matter what size the organization is, M&A activity nearly always involves a “moving-in” period. For finance, the books have to be joined or at least coordinated. Controllers and CFOs should look for the best way to centrally manage multiple subsidiaries. The goals of consolidation should include the following:
- Minimize the effort to roll up data for reporting.
- Gain visibility into expenditures and settlements.
- Employ auditable processes across subsidiaries.
- Enable drill-down reporting to each subsidiary.
If both businesses involved in the merger use the same ERP or accounting systems, consolidation is a little less complex. However, every ERP implementation is typically customized in some way — so tread carefully. The systems merger will likely be the biggest project that either business has undertaken and may take years to be fully completed.
Other financial technologies such as expense systems or payables systems may be more localized, but that can actually be a problem. There is less control from headquarters if systems are disparate. Standardizing each subsidiary or entity on similar systems ultimately makes the controls and reporting more uniform, and unless these secondary finance systems are uniquely tied to a specific business model, they should be usable. On rare occasions, a number of these systems may also offer a multi-entity architecture, which can make global adoption of a secondary system much simpler.
2. Reduce the operating-expense footprint.
The natural inclination for finance to consider during mergers and acquisitions is to reduce cost. So of course, M&A is an ideal opportunity to do so. However, cutting costs merely for the sake of saving immediate funds is not always the best approach and may end up being a matter of “cutting off your nose to save your face.” Smart saving is the key. It’s more strategic to work on the outer rims of the organization and move in. That’s because usually functions that are spent more around outside engagement (e.g., travel and expense, supplier management, bank engagements, etc.) require less operational upheaval.
M&A provides the opportunity to streamline two or more organizations at once. This means taking the best of each organization and optimizing tendrilled processes. This is an ideal time to bring in automation technologies. Such technologies can increase in value across multiple entities because they are usually designed to maximize economies of scale. In other words, the broader the adoption of automation technologies, the more savings you can expect, as well as improved productivity and efficiency across each business unit.
3. Reduce reliance on IT.
During any M&A activity, the CIO and IT team will likely be busy with custom projects and their own consolidation. That means there are fewer technical resources for any kind of transformational initiatives in the back office. It’s important to hone in on ways to offload repeatable, solvable, non-proprietary processes such as vendor portals and paperless initiatives from IT’s workload. There are plenty of cloud-based, proven technologies that can drive immediate results, are secure, and enhance control and productivity. There’s little reason for back-office application development that isn’t directly tied to other technology. M&A activity can be a catalyst towards those goals.
4. Establish clear boundaries between subsidiaries and roles.
With multi-entity technologies, CFOs and controllers need to ensure proper financial reporting and controls. This can include researching and adopting the best method for separating funds. There may also be unique requirements for proper tax and regulatory compliance controls if the entities are spread across multiple international borders.
Most critical, perhaps, is establishing access rights to information. If maintaining confidentiality across subsidiaries is a requirement, each system will need to account for that type of separation, while still allowing headquarters to roll up data. Ideally, any systems will enable central management of access controls so the wider organization can provision and administer accounts easily.
5. Maintain a unique identity and localization for each subsidiary.
Outward-facing technologies that involve external customers, partners, and suppliers must maintain an individualized brand for each subsidiary. For example, while Disney may be a recognizable brand, they still maintain various sub-brands and companies for specific audiences and purposes.
If the subsidiary is in another country, branded communication points will also need to support different languages, currencies, taxation, local approval personnel, and governance requirements.