As the new masters of mergers and acquisitions, CFOs—and finance departments in general—are experiencing increasing pressure to create value for their firms.
But a growing pool of research shows that some time, the question of whether M&As actually create value can be decided by a coin toss.
“Take your pick from dozens of academic studies and the consensus is that mergers destroy value at least half of the time, to the point that it’s almost become a cliché,” writes Andrew Ross Sorkin, who covers M&As for The New York Times. “But when mergers are timed right — usually during a downturn in the market — and executed properly (usually with smaller acquisitions), much value can be created.”
Given this statistical crapshoot, Vantage compiled timely tips for CFOs. And ‘tis the season for mergers. According to Thomson Reuters, in the last month worldwide M&A activity has exceeded $3 billion. Use these tips to ensure that your finance department is delivering ultimate value to your firm.
1. Consider the timing.
It may sound cliche, but timing is everything when it comes to inking a successful M&A—especially if you’re the one selling.
“Sell while it is still opportunistic rather than an imperative,” according to a 2005 seminar summary by Fenwick & West LLP. “Optimum timing for a private company may be where it does not have a near-term financing need and it is far enough away from the previous valuation that it has had the time to create more momentum. Sell when you actually have something to sell. If you are approached by one of the dominant players in your market segment, consider that bid carefully, as if you spurn the inquiry, you can expect that the inquiring company will soon become a competitor.”
2. Keep your head in the cloud.
CFOs should never underestimate the power of the cloud. As the capability of cloud-based systems (whether IT or accounting-based) increase, they can make the process of merging with a company easier than ever before. Consequently, during an M&A transaction, CFOs should be aware of how their buying or selling firm organize their data.
“The ability to bring cloud applications on board very quickly, to absorb a re-organization, an acquired business unit, or simply to test a new market venture, liberates businesses from the technical constraints of old and inflexible legacy systems,” writes Oracle Vice President Karen dela Torre. “With M&A activity gaining pace it will be the most agile companies that are able to execute most effectively on their merger strategy. Key to that success will be the simplification, automation, and standardization of processes, a commitment to deeper planning during the due-diligence phase, and leveraging leading-edge thinking in shared services and agile deployment methods such as the cloud.”
3. Become the CRO.
As a CFO, you’re used to crunching numbers, not necessarily finessing relationships. As the new master of an M&A deal, though, you need to pivot to become your company’s CRO— “Chief Relationship Officer.”
Jonathan Chadwick, a CFO at the software firm VMWare who has helped orchestrate deals at companies such as Cisco Systems and Skype, told CFO.com that these relationships are integral to the success of any deal.
“I spent much one-on-one time with the CFO of Microsoft going through integration,” Chadwick said at the CFO Rising conference in Phoenix in 2013. “The empowerment I felt as a result of that access made a huge difference as I drove the integration of Skype into Microsoft.”
Question: What M&A tips have you collected in your experience as a CFO?
Want to find out how to achieve this for your firm? We can show you: Contact us.
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Many companies lack a strategic view of procurement.
For most, it’s a task to be crossed off a to-do list—a transaction rather than an opportunity leveraged to grow and expand their company. As a result, they miss out on hundreds of thousands—even millions—of dollars in savings each year.
What the smartest CFOs realize is that taking a more comprehensive and calculated view of procurement can transform it into actual enterprise value. They know that the right procurement strategy can create value for a company’s owners and shareholders.
Consider this: Starting with just indirect spend and implementing a spend analysis, pursuing a strategic approach to sourcing and ensuring the results are sustained, a company with $100 million in annual revenue can realize a $1Million improvement to EBITDA (earnings before interest, taxes, depreciation and amortization).
Based on a 5X multiple, that could boost the firm’s enterprise value by $5Million.
Here’s how the numbers work: according to an Accenture CFO Insights survey, firms that implement source-to-pay best practices on indirect spend experience 11 percent savings on average. For the typical firm, indirect spend makes up 10 percent to 20 percent of revenue, which translates to savings equal to 1 percent to 2 percent of revenue.
Imagine achieving those results for your firm, and then sharing them with your CEO or board of directors.
Even if you’re not gearing up to go public or courting a strategic buyer, these savings yield (on average) an extra 100 basis points to operating margin, freeing up capital that can be used to fuel growth, or preserve the bottom line during challenging economic times.
Procurement is more than just a cost center. Approached strategically, it’s a proven way to increase enterprise value and bolster your company’s bottom-line.
Want to find out how to achieve this for your firm? We can show you: Contact us.
photo credit: reynermedia via photopin cc
Many companies lack a strategic view of procurement.
For most, it’s a task to be crossed off a to-do list—a transaction rather than an opportunity leveraged to grow and expand their company. As a result, they miss out on hundreds of thousands—even millions—of dollars in savings each year.
What the smartest CFOs realize is that taking a more comprehensive and calculated view of procurement can transform it into actual enterprise value. They know that the right procurement strategy can create value for a company’s owners and shareholders.
Consider this: Starting with just indirect spend and implementing a spend analysis, pursuing a strategic approach to sourcing and ensuring the results are sustained, a company with $100 million in annual revenue can realize a $1Million improvement to EBITDA (earnings before interest, taxes, depreciation and amortization).
Based on a 5X multiple, that could boost the firm’s enterprise value by $5Million.
Here’s how the numbers work: according to an Accenture CFO Insights survey, firms that implement source-to-pay best practices on indirect spend experience 11 percent savings on average. For the typical firm, indirect spend makes up 10 percent to 20 percent of revenue, which translates to savings equal to 1 percent to 2 percent of revenue.
Imagine achieving those results for your firm, and then sharing them with your CEO or board of directors.
Even if you’re not gearing up to go public or courting a strategic buyer, these savings yield (on average) an extra 100 basis points to operating margin, freeing up capital that can be used to fuel growth, or preserve the bottom line during challenging economic times.
Procurement is more than just a cost center. Approached strategically, it’s a proven way to increase enterprise value and bolster your company’s bottom-line.
Want to find out how to achieve this for your firm? We can show you: Contact us.
photo credit: reynermedia via photopin cc
Many companies lack a strategic view of procurement.
For most, it’s a task to be crossed off a to-do list—a transaction rather than an opportunity leveraged to grow and expand their company. As a result, they miss out on hundreds of thousands—even millions—of dollars in savings each year.
What the smartest CFOs realize is that taking a more comprehensive and calculated view of procurement can transform it into actual enterprise value. They know that the right procurement strategy can create value for a company’s owners and shareholders.
Consider this: Starting with just indirect spend and implementing a spend analysis, pursuing a strategic approach to sourcing and ensuring the results are sustained, a company with $100 million in annual revenue can realize a $1Million improvement to EBITDA (earnings before interest, taxes, depreciation and amortization).
Based on a 5X multiple, that could boost the firm’s enterprise value by $5Million.
Here’s how the numbers work: according to an Accenture CFO Insights survey, firms that implement source-to-pay best practices on indirect spend experience 11 percent savings on average. For the typical firm, indirect spend makes up 10 percent to 20 percent of revenue, which translates to savings equal to 1 percent to 2 percent of revenue.
Imagine achieving those results for your firm, and then sharing them with your CEO or board of directors.
Even if you’re not gearing up to go public or courting a strategic buyer, these savings yield (on average) an extra 100 basis points to operating margin, freeing up capital that can be used to fuel growth, or preserve the bottom line during challenging economic times.
Procurement is more than just a cost center. Approached strategically, it’s a proven way to increase enterprise value and bolster your company’s bottom-line.
Want to find out how to achieve this for your firm? We can show you: Contact us.
photo credit: reynermedia via photopin cc
