Finance as a Catalyst for a Successful Merger or Acquisition - Program Management
/Note: This is the second post in a multipost series. You can read the Overview here.
As the Finance organization prepares for the effective integration of a merger or acquisition, there are several phases that must be planned. These phases include:
- Pre-integration planning
- The "Day One" start date
- The continuing effort to merge the two organizations, including IT systems, work forces and governance models.
Any successful integration effort will be led by a strong Program Management Office (PMO) that provides the vision and guidance required. The PMO is responsible for developing and executing the overall integration plan. The Finance organization can assist the PMO by identifying early on the leaders of the finance integration effort. Team leads for each focus area within finance (e.g. general accounting, treasury, etc) should have not only relevant technical skills but also a proven track record of leadership. The choice of individuals sends an important signal to the organization about its commitment to a successful integration.
Pre-Integration Planning
The time before the planned merger or acquisition date should be used to create a comprehensive plan that will guide the finance organization through and after the actual date of combination. This will be a time when the finance organizations of both companies can exchange information that can assist in the integration planning. There are a number of laws that govern the exchange of information in a merger or acquisition, the violation of which can lead to civil and criminal penalties. In all instances the Finance organization should work very closely with their company's legal counsel to minimize the risk of gun jumping, or exchanging competitive information prior to the combination date.
As information is collected, a detailed plan should be developed that covers the activities of the Finance organization. Subsequent posts will discuss some of these issues in detail, but in general the integration team should plan for the stub accounting period to account for the shortened reporting period (assuming the combination date isn't at the fiscal year-end). Additionally, the integration team will need to think through critical issues such as notifying external and internal stakeholders of the planned changes (e.g. Where will suppliers send their invoices after the combination date?), how cash between the new and old legal entities will be separated, , how the two Finance organizations will work together, and how accounting information will be collected and aggregated given the disparate accounting systems.
Day 1 Activities
As of the date of the merger or acquisition, the integration team will need to properly value the acquired company or the acquired assets and liabilities. It is essential that the acquiring company work closely with their external auditors to ensure proper valuation, including an audit of inventory that may be spread out over numerous locations.
The Day 1 activities also include the start-up of the combined operations, when the two companies are operating as one legal entity even though the key elements of the Finance organizations: the personnel and the IT and accounting systems are still separate. This is where a well thought out plan is worth its weight in gold. If the integration was properly planned, Day 1 will go well despite the complexities of the integration.
Continuing Merger Integration Efforts
Although the planning and Day 1 activities are essential to an integration, the way in which a company handles the post-merger activities will play a large part in how much and how quickly the anticipated synergies of the merger are realized. There are different approaches to merger integration. In some mergers or acquisitions, the acquiring company's business model and IT systems are the default standard and all of the target company's personnel and systems are converted over. In other mergers, such as the HP-Compaq merger, the best of each company's systems are chosen while a new organizational model is developed. If a company manages itself as a diversified conglomerate, it might even make sense to leave some or most of the systems "as is" since the acquired company will operate almost independently. No matter which path is chosen, the efficient execution of the integration plan will in large part determine the success or failure of the merger or acquisition.
Conclusion
The above considerations just scratch the surface of the factors to be considered in a merger or acquisition. No integration effort will go flawlessly, but if the integration effort includes detailed and realistic planning, an effective Day 1 start-up and effective long-term integration of both companies' work forces and systems, the finance and overall program management teams will greatly increase the odds of a successful integration.
