We often say that our FP&A solutions give companies a single source of truth they can rely on. When built, configured, and used correctly – any user can dig into the data and trust that they’re leveraging a solid foundation that can harness the inherent complexity and deliver key insights that inform strategic decision-making. It’s possibly the most important bedrock feature that sits at the heart of what we do.
This idea was re-emphasised at the recent Executive Finance Summit where a select group of leaders and practitioners gathered to discuss the current state of M&A transactions in Europe and beyond. One of the common topics that surfaced was the need for financial information that was not only accurate but timely – so that both the buy-side and the sell-side could negotiate with the requisite facts and assumptions clear in their minds.
In this article, we’re going to explore how data consistency is the key to achieving this – especially when a transaction takes months (and in some cases, years) to close.
The long cycle of an M&A transaction
An M&A transaction is inherently complex because you have two entirely different entities trying to find a way to merge or absorb one another. They are highly intricate processes that require meticulous planning and precise execution. Both companies must spend a lot of time and effort preparing for a potential sale, investigating the possibilities that are on the table, negotiating a fair valuation, and planning the integration process in terms of workflows, technology, human resources, business models, financial reporting, and so on. Then you also have external forces such as regulatory and compliance approvals – that can also slow down progress in a way that is outside of your control.
This is not an exercise that is entered into trivially and so these deals will often take months and months to conclude. What this means is that the company that is originally on the negotiating table at the beginning is often not the same company that is actually sold/merged at the end of the process. On a wider scale, the economy and industry itself can change dramatically in that time, casting doubt on assumptions that were made and changing the circumstances that were initially in play. It’s safe to say that a lot can happen in those months that changes the underlying economics of the transaction – and it’s this uncertainty that often kills deals.
The only way to manage this uncertainty is to have as robust a system as possible to measure, monitor, and report on the changes happening – so that both parties can adjust their negotiations accordingly, with the new data in hand. This requires an FP&A setup (for the company being acquired) that is ingesting real-time data and injecting that into the rolling forecasts in a way that is consistent and trustworthy. Plainly said, the success of the deal depends heavily on the accuracy of the financial data available to both parties.
If you aren’t able to achieve this and are instead using a static forecast that was crafted in a vacuum at the beginning of the process, then it is difficult to make sense of the new data that comes in and how it affects the transaction that is currently being negotiated. This not only degrades decision-making capabilities but it also introduces doubt around the story you’re telling as the company being acquired.
The value of consistency in your data structures
Business continues throughout the M&A deal cycle so your forecasts must keep rolling forward if they are to be useful. This requires consistency in terms of data processing, analysis, and reporting – and that’s exactly what solutions like Apliqo can help companies achieve. The dynamic database structure that sits at the heart of our solutions ensures that you have a fully reconciling model at all times with the data flowing through the historic financials and into future projections in a way that makes due diligence that much easier.
This is powerful because the story you’re telling is always backed by real data and consistent assumptions that can be proven. This transparency builds trust and goes a long way to showing that your company’s financial and operational workflows are showing the reality as it is, rather than as you wish it might be. Additionally, it allows the acquiring company to rely on its risk management methodologies because it can continually update its models according to what is happening in real-time. When you reduce the risk of obsolete information you can smooth the process and speed up the transaction significantly.
In fact, once you have a single integrated system like this, it’s hard to fathom how you could have ever done it differently. The single source of truth is liberating and frees you from the tedious work of reconciliations, manual adjustments, and ad-hoc reporting pressures. Instead, you can focus your attention on what truly matters – identifying the synergies in the transaction, reinforcing a fair valuation, and preparing for the chaos that comes with a successful deal.
It goes beyond M&A transactions
It’s worth mentioning that while we’ve focused on M&A transactions here (as a nod to the Executive Finance Summit) there are plenty of benefits in normal day-to-day operations as well. While you might not always be preparing for a major acquisition, you are always making strategic decisions that impact your company’s trajectory.
Robust FP&A workflows and technology ensure that you can gather data from various sources, compile them into a single system, and then combine it with assumptions about the future that can give you a full picture of where things are headed. As the forecasts roll forward, so do your vision for the future and the decisions you’re making to get there.
Without consistent data, you’re moving forward into the dark, relying on a snapshot in time that has passed you by. And that’s no way to run a business.
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To explore how Apliqo can provide this value for your business, be sure to get in touch with us today. We’d love to explore how we can help transform your FP&A activities.