As companies prepare to merge and acquire, or be acquired, finance takes centre stage. Firms are under pressure to provide the right data at the right time during the M&A process to avoid disruptions in the integration of finance, accounting and reporting functions.
US chief executives listed mergers, acquisitions and joint ventures as their second most common strategy for growth in 2013, according to PwC; mergers were fourth on the list of growth strategies in 2012. Globally, 28% of chief executives planned domestic M&As in 2013.
One might presume that companies in the throes of a deal would be thinking about post-deal integration details well before the ink dries. But 39% of companies began planning for accounting and finance integration after completing the deal, according to a recent Ernst & Young survey of 200 senior finance executives from 21 European countries.
Late planners were twice as likely as timely planners to experience unexpected issues with budgeting and forecasting integration. M&A procrastinators also were more likely to have difficulty gathering information for financial statement disclosures (78% vs. 52% of early planners) and more likely to encounter unexpected GAAP or other accounting policy differences (47% vs. 32%).
Plan well, plan early
To be sure, planning for accounting and finance integration after a deal has a significant impact on the integration program’s success or failure. Sixty per cent of senior finance and accounting executives reported having difficulty acquiring information for financial statement disclosure, the survey found.
“Failing to plan early enough … increases the risk of inconsistent or inaccurate management and financial information being generated for the target’s business units or geographies and can also present challenges for the completeness of the disclosures required for external reporting,” Andy Smyth, Ernst & Young Financial Accounting Advisory Services partner, said in a news release.
Despite 90% of respondents thinking they had a clear strategy mapped for accounting and finance integration, respondents had post-deal issues with financial reporting, management reporting, and budgeting and forecasting:
- 51% reported issues with financial reporting integration.
- 44% reported issues with each of management reporting and budgeting and forecasting.
- 29% reported issues with purchase price allocation.
Scrutinise accounting processes and policies
Change is rarely easy, especially in integration of financial reporting. Different accounting policies of the acquirer and the acquired are not easy to mesh.
Seventy-three per cent of financial directors and controllers who had issues with management reporting cited management accounting policies different from their own as the source of the issue, according to the survey, which polled finance executives whose companies had been through a merger in the past three years. Respondents said it was paramount to emphasise that the alignment of each company’s charts of accounts and management reporting templates would lead to better post-deal reporting.
“Companies can use different definitions of what costs are or what is included in a particular line,” Arnout Traas, CFO of Forfarmers Group B.V. in the Netherlands, said in the report. “You have to agree on the definitions and know what the differences are, so that you prevent a misrepresentation of figures.”
Communicate and co-ordinate
Robust communication and project management, from both finance teams, contributed to successful post-deal reporting and accounting integration, the report said. Amongst those who faced challenges in management reporting, 33% said they would seek improved communication, coordination and alignment in future M&A activities.
“Enterprises that are frequent acquirers know that a good partnership with the target’s finance team is vital to a smooth integration process,” Smyth said. “Establishing clarity over roles and responsibilities at an early stage and working visibly and collaboratively towards shared objectives will enhance the effectiveness of the integration team.”
Experience with M&A accounting integration is also important, the report says. Having a well-qualified team in place is vital, and if the accounting talent lacks this experience, the use of external specialists is recommended.
—Neil Amato (firstname.lastname@example.org) is a CGMA Magazine senior editor.