We recently attended the Executive Finance Summit in Zurich, an event that brought together industry leaders and companies to explore best practices in M&A transactions. It was a wonderful opportunity to learn from exceptional thought leaders and practitioners in the space, offering a comprehensive view of the current state of the industry.
At the summit, Apliqo CEO Daniele Tedesco presented the top ten ways that FP&A solutions drive value in mergers and acquisitions. His insights sparked a conversation about how FP&A technology is transforming how these deals are done.
We thought we’d share some of the points from that presentation for those who weren’t able to attend, and hopefully the sheer scope and capability can show you just how crucial the right FP&A technology can be for your organisation.
1. Financial due diligence
In any major transaction, financial due diligence is the foundation on which every decision is built. All parties need to be able to trust that the numbers they are working with are accurate, timely, and valuable. This is where strong FP&A technology really shines. It enables rigorous analysis of the historical financial statements of the target company and projections for future financial performance. For these to be valuable, they need to be backed by solid assumptions, drivers, and data – so that the acquiring company can evaluate the quality of earnings and cash flows.
2. Valuation analysis
Naturally, valuation is the key negotiation that happens in every M&A transaction, and it needs to be grounded in accurate data. Robust FP&A systems can help companies perform high-quality Discounted Cash Flow (DCF) analyses that allow for comparisons to peers and wider industry benchmarking. The right software can sit at the heart of these analyses – allowing for transaction multiples and precedent transactions to play the role they need to play in challenging negotiations. Once again, the quality of the data makes all the difference here.
3. Scenario planning and stress testing
Risk management is near the top of the agenda for any major acquisition decision and that’s where scenario planning and stress testing is so important. An acquirer needs to understand how negative situations and scenarios can affect their potential return and factor that into how they think about the valuation, terms, and other key aspects of the transaction. The right FP&A technology can provide this capability, allowing acquirers to create multiple financial scenarios that assess potential outcomes, while also stress-testing key assumptions. By quantifying the company’s sensitivities to key business drivers it gives a much more objective picture of what the acquiring company is looking to purchase. It provides a more sober and conservative view of what can be a very complex decision-making landscape.
4. Synergy assessment
One of the major reasons for M&A transactions is the belief that particular synergies can unlock additional value that previously wasn’t possible. At its core, this is what makes these deals desirable. Once again, FP&A technology can play a major role here by helping companies evaluate cost savings, revenue enhancements, and operational efficiencies that come with a combined entity. By being able to forecast these, with the requisite complexity within, both parties can better evaluate the potential outcomes here and decide if the intuitive synergies actually bear out in practice.
5. Integration planning and execution
Once an M&A transaction has been agreed in principle, there is still a lot of work to be done to ensure that both sets of operations can be integrated successfully. This is often where things can fall off the rails if you’re not careful and so it’s crucial to develop detailed integration plans and timelines that can guide this process. FP&A technology can be used to forecast these integration costs and potential disruptions, helping to identify problems early so they can be fixed proactively. Small optimisations here can go a long way to ensuring that the transaction goes as planned and delivers the value it promised.
6. Cash flow management
Managing cash flow during and after any M&A transaction is absolutely vital – and it’s something that is only really possible with the appropriate FP&A tools. When you’re using the right technology you can achieve detailed cash flow forecasting and monitoring that maintains liquidity and identifies any potential cash flow issues promptly and accurately. This is especially true when you consider the planning that is needed to understand working capital needs after the transaction has been completed. These impacts must be well understood if the deal is to achieve the optimisations and synergies that investors hope for.
7. Performance management
The only way that you can assess whether an M&A transaction has been successful or not is to set key performance metrics and KPIs that are monitored against pre-determined targets. This aspect of performance management can then inform both the decisions made within the current context and any other M&A activity that may happen in the future. Robust FP&A solutions enable continuous monitoring and reporting of these KPIs that allow management to quickly identify any deviations from the initial plan and take corrective action – in a way that is backed by real data.
8. Risk management
Identifying, assessing, and mitigating risk is a key aspect of M&A transactions. FP&A software helps companies conduct thorough risk analyses that model the financial impact of various risk types so that robust risk management strategies can be developed. These span a wide variety of different risk categories including financial, operational, and market-related risks – all of which contribute towards a holistic evaluation of where a business currently stands and how the M&A transaction will transform it.
9. Stakeholder communication
An M&A transaction affects a great number of different stakeholders, both internal and external, and the way that key information is communicated often has an outsized impact on how the deal proceeds. The company being acquired needs to prepare various financial presentations and reports for these stakeholders, seeking to communicate the financial and operational impacts of various scenarios, forecasts, and synergies. FP&A solutions allow for this to be achieved easily and efficiently, providing transparency into what can be a very complex data landscape. The way that companies tell their story makes all the difference.
10. Regulatory and compliance
Ensuring compliance with regulatory requirements is a complex yet critical aspect of M&A transactions, and one that can be overwhelming if you don’t have the right back-end structures in place. FP&A tools help to manage this complexity and ensure that you have the financial documentation and reports that are required. This is not something you can avoid because the legal and financial penalties can be significant when errors or omissions are made. It gives everyone peace of mind when the financial system underlying the reports is fully transparent, integrated, and holistic – allowing for efficient compliance procedures throughout the organisation.
When you think about it, the fact that FP&A tools play such a critical role across such diverse and multi-faceted components of the M&A process is quite remarkable. They are the backbone of these transactions and form the foundation for all the negotiation that happens upstream. At the Executive Finance Summit, it was clear from the discussions that this is a view held by all parties – that all stand to benefit from cleaner data in more digestible formats that can be wrangled and analysed in more sophisticated ways.
Here at Apliqo, this is what we’re trying to achieve with our software solutions. We’re on a mission to transform the world of FP&A and we’re very excited to see the role it’s already playing in so many M&A deals. If you’re looking for a more sophisticated toolkit to support your M&A activity, be sure to get in touch today, and let us show you how we can help.
