Five things you must learn about the new M&A landscape

Byron Traynor, CPA, is a managing director at Protiviti, a consulting firm that advises businesses on finance, technology, operations, governance, risk and internal audit. Traynor is the global leader of the company’s transaction services division, which advises companies on mergers and acquisitions. Jack Hagel, CGMA Magazine’s editorial director, caught up with him to talk about the M&A landscape – and what it might mean for finance professionals. Here are excerpts from their conversation. The dialogue has been edited for clarity and length.

Q: If large companies are delaying mergers, as the Ernst & Young report indicates, is there an opportunity for midsize companies to swoop in?

A: They’re going to face the same issues as the larger companies: Are they getting good valuations, and are they really strategic fits for them? And do they have the financing lined up to do it? Midmarket companies may have a more challenging time getting credit financing than the larger cap companies. But every deal is going to have a different look and feel to it.

Q: Which companies are doing deals now?

A: Companies that have done a really good job of managing their costs through the downturn and have maintained their profit lines, but now have the market pressure to grow. They’re looking to pick up competitors that are in channels that are in complementary to theirs, or that can expand their geographic reach, and grow the top line and get some of that to the bottom line to show growth.

Q: Because of the downturn, has there been more focus on the financials in M&A?

A: Boards are being pressed to provide more risk oversight of what management teams are doing. The SEC is pressing boards of directors to disclose in their proxies what they are actually doing to provide risk oversight of the organisation’s risk management processes.

Obviously one of the riskier things organisations do is expand their footprints through acquisitions. So they’re asking boards to be involved in providing oversight to how they’re valuing the acquisition, how they’re going to integrate it, how they’re going to drive the synergies and who’s accountable for it.

Q: With that extra scrutiny, are there different types of analyses? Different types of numbers, such as nonfinancial data, that they’re examining?

A: The finance team still is a critical part of the due diligence and evaluating the deals to come up with the right information for management to make good decisions and for the board to oversee it.

One of the key criteria companies are looking at is the strength and leadership of the management teams that they’re acquiring. And retention of key management in these acquisitions and what they’re bringing to the table.

Q: What advice would you give a finance staffer who might be doing M&A work in the future?

A: Understand what’s important to the CEO and the board. Understand what the strategy is. Be part of the solution, knowing the key objective criteria to do deals. Understand risk appetite. And have yourself and your team prepare so that, when deals are identified, you’re ready to quickly evaluate and see if the targets meet the criteria. Or go out and help source data to look for potential data that meets the strategy. Be proactive about it.