Mergers and Acquisitions (M&A) are a common tool used by companies to position themselves to take advantage of market conditions, realign assets, or manage financial obligations.
Part 2 of this series reviews the role EPM solutions can play in the acquisition planning and integration process.
EPM in the M&A Integration Process
The Acquisition Planning and Merger Integration Process represents the major steps in the process of executing an effective M&A strategy. This is a dynamic process, driven by information and applied by experienced practitioners. EPM and strategic finance capabilities contribute to this cycle throughout each phase from Strategy through Optimization.
So, how does EPM, as a set of tools and practices, support the M&A Process?
- Target identification & Planning: EPM provides a set of actual performance measures and key planning assumptions that are used to compare target performance to current operations, driving a base valuation range.
- Operational Due Diligence & Integration Requirements: Future state models are created that combine plan/actual data from the current organization with actual data from the integrated entity. Assumptions can then be changed and documented to do sensitivity analysis, identify areas of great return/impact and risk to planned returns.
- Pre-close Integration Planning: Sophisticated HR functionality allows detailed modeling of staff acquisitions, impacts of benefit program changes, represented labor contracts. Financial covenants and burdens are modeled and KPI’s for ongoing monitoring are established and integrated into standard management reporting.
- Integration & Synergy Capture: Pull “day 1” operational and financial data into the EPM platform instead of waiting for underlying financial/operational systems consolidations. This avoids the time and “value leakage” that often occurs in protracted post-merger integration processes.
- Operational Excellence: The integration with the existing EPM culture, tools and practices is
complete, and the steady pace of “Monitor – Optimize” begins. This “Sustained Excellence” goal is not a static end state but a dynamic, information driven way of conducting business, and can represent one of the largest “Culture” gaps between the management teams. By using EPM to keep expectations consistent through the M&A process, transitioned managers are already familiar with your operational culture, and can see the terms, expectations and measures they agreed to in the M&A process clearly reflected in the ongoing operation, reducing expectation gaps.
At the end of the M&A process, how do we know we got it right, and more importantly, how do we know what we got wrong in a timeframe in which we can change the impact and outcome to maximize value realization? EPM provides the information context that keeps you on track.
Value Realization – Did we Get it Right?
Once a transaction is closed, the challenge of value realization begins. For some M&A transactions, it can take months or even years before the various financial, operational and reporting functions begin to integrate, forcing management to “fly blind” or attempt to manage the new assets with a patchwork of legacy reports, manual processes, and “gut instinct.” How well are the assumptions playing out? Are we capturing synergies at the rate we projected?
Effective EPM programs, integrated with the M&A process, can avoid the “dark period”, often months or critical quarters, before management can get a unified look at the enhanced business. Providing consistent information to FP&A, Operations and line of business managers and other reporting and analytical functions aligns the entire team around the new goals and objectives, and provides quick insight into successes and challenges. It is during this period where value leakage is at its height, and as time passes, it becomes more and more difficult to “re-track” an acquisition.
For most EPM solutions, delivering this enhanced view of the business is often a matter of a few hours or days work, as the final M&A scenario is folded into the base corporate forecast, new hierarchies of information (geographies, product line structures, legal entities and reporting relationships) are documented and a new set of expectations and measures for the converged entity are quickly shared and tracked.
To learn more about WG Consulting and our M&A services please visit our web site.