The Role of a CFO in M&A

The value a CFO brings to a mid-sized company is well understood. At a high level, the CFO manages a company’s financial affairs, allowing the CEO to focus on day-to-day operations. But what does this broad definition mean when a company is cycling through a transaction process? For companies who are selling, raising capital or acquiring smaller businesses for growth, a CFO plays a vital role at every stage in the deal process.

Before the deal: creating the transaction plan

The beginning stages of a deal include extensive due diligence, whereby a CFO solidifies the story he will present to corporate stakeholders on expected outcomes. Whether on the buy-side or sell-side, the CFO considers financial questions about pricing expectations, value add, and risk. This research is both qualitative and quantitative in the earliest stages, as the CFO needs to be able to communicate an overall vision for the transaction to corporate stakeholders and align to the company’s “big picture.”

As this research progresses, it evolves into the numbers game one would expect to come from the CFO seat — setting financial requirements for Internal Rate of Return, EPS timelines, and even basic planning for acquisition financing can begin before a deal even takes place. Providing minimum benchmarks that the stakeholders both understand and agree with before entering a negotiation is an essential role a CFO plays in maximizing financial efficiency.

During the deal: maximizing synergies

Once a company has narrowed down a list of counterparties (either potential buyers, investors or acquisition targets), or has entered the transaction phase, the CFO’s role transforms into chief negotiator – making sure the company achieves the best deal possible. Both seller and buyer want to maximize synergy to make sure they’re extracting the most a deal can financially offer. It’s critical during this stage that CFOs from both sides maintain open communication about acquisition conditions, growth potentials, and other financial targets that will make the deal a success.

As these negotiations progress and the end of a transaction nears, the CFO must simultaneously create a comprehensive integration plan that will be ready for execution the moment a deal ends. The 100 days immediately following a merger are the most critical for capturing the synergies so intensely planned for during the transaction process. In creating the integration plan, the CFO works extensively with all departments to define performance metrics, design incentives, and designate those who will be responsible for carrying out the plan.

After the close: integrating for operational efficiency

Once a deal is complete, it’s time for the CFO to deliver. In the case of a merger, bringing the integration plan to reality is the main focus. The CFO makes important decisions about financial and operational engineering, but must also develop a way to monitor the progress. If a system developed during the planning phase isn’t quite delivering the results discussed with stakeholders, the CFO needs to be ready with alternate ideas and a close ear to the ground on why they’re experiencing hold-ups. That’s why choosing the right performance metrics early on is such an important step–it’s impossible to reflect and pivot if you can’t measure what’s wrong in the first place.

On the more informal side, the CFO might hold training workshops for a company post-deal. Efficiently integrating one business into another and aligning practices is as much about the people as it is about physical business. The CFO and the operational engineering team need to make sure employees understand any new goals and encourage excitement about working towards them. To accomplish this, a CFO should be prepared to put in the face time to explain the results of the deal and the expectations for the newly formed company. As an added effort, this can go a long way to successfully capture the value of a deal.