FINANCE AS A CATALYST FOR A SUCCESSFUL MERGER OR ACQUISITION SIX FOCUS AREAS TO ADD VALUE TO THE INTEGRATION PROGRAM

Global Finance 360 | Copyright 2011 | All Rights Reserved 1

Global Finance 360

Your company has just announced a pending merger or acquisition, and the Finance organization has a key role in the successful integration of the acquired asset. As part of integration effort, the Finance organization must develop and execute a plan that effectively integrates the new business while controlling cost and risk. The decisions Finance makes are critical to realizing the anticipated value creation and its ability to communicate that value to stockholders, creditors and other relevant stakeholders. The challenge is bucking the historical trend of mergers and acquisitions. Studies have shown that many mergers and acquisitions fail to deliver the anticipated increase in shareholder value. In fact, some mergers and acquisitions have been known to actually destroy shareholder value. It doesn’t have to be that way. Thoughtful planning and careful execution of the integration program can increase shareholder value and create the scalable platform necessary to support future growth. Leadership at all levels of the Finance organization is required to successfully drive the integration effort. Executive sponsorship will be most effective when it is visible and committed to providing the necessary resources for a successful integration. Leading companies also commit dedicated leaders to each focus area to ensure that proper attention is given to the integration program while maintaining the leadership and staff necessary to run the existing organization during the integration period. The table below highlights six focus areas that are essential to any merger or acquisition. Proper planning and methodical execution are the keys to a successful integration.

Table 1: Top Focus Areas for Finance Integration

Focus Area Description

Program Management Leading the merger program to deliver value through effective management of the integration process.

Workforce Planning Organizing the combined entity’s human resources to carry out the work of the Finance organization.

Business Planning Managing the budgets and forecasts of the combined entity.

Information Management Organizing the data structures and information flow required for regulatory, statutory and management reporting.

Liquidity Management Managing the combined entity’s cash position to ensure proper funding of daily operations and planned initiatives.

Risk Management Managing the new organization’s internal control environment to ensure the proper identification and mitigation of financial risk.

“The Finance

organization plays

a critical role in

the planning and

execution of the

integration plan.

The right

leadership and

approach to the

integration will

enable the

company to

realize the value

anticipated during

the pre-

acquisition

analysis and

provide a scalable

platform to

support future

growth.”

Global Finance 360 | Copyright 2011 | All Rights Reserved 2

About Global Finance 360

Global Finance 360 covers the world of corporate finance and accounting and how these activities are impacted by globalization. Focus areas include Finance Delivery Strategy, Shared Services, Business Process Outsourcing, Process Improvement and Organizational Design.

Global Finance 360 is run by Steve Lynch. Mr. Lynch is a Principal in the Finance Transformation practice of a global consulting company. He is responsible for the marketing, sales and delivery of Finance Transformation services in North America and serves as a key liaison for his company’s global Finance practice. He brings more than 15 years of experience advising global companies on their service delivery strategies and has served over 60 clients in a variety of industries including consumer product and industrial manufacturing, aerospace & defense, transportation, technology, entertainment and financial services. He has also served as a Controller in private industry and as an auditor in public accounting.

Mr. Lynch is an active content contributor on the topics of Finance Transformation and globalization and has presented at various forums including the IQPC Shared Services & Outsourcing conference. He can be found on the web at www.globalfinance360.com.

Contact Information:

Steve Lynch

Toll-free: +1.800.216.2512

Office: +1.719.481.2599 1042 W. Baptist Road Suite 194 Colorado Springs, CO 80921

slynch@globalfinance360.com www.globalfinance360.com

Program Management 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. This office should be led by a respected and proven leader that has the organizational credibility to drive the program. Team leads for each focus area 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.

Workforce Planning The integration team will need to design the new organizational model for Finance, align roles and responsibilities, and assess the existing workforce skills in the buyer and target companies. From there the team can document any gaps in skills and develop a plan to remediate those gaps. Through all this, be sure to include existing outsourcing relationships in both organizations as part of the overall capability assessment. A separation plan should be developed for those employees who will not be part of the new organization. A knowledge transfer initiative should be implemented to ensure that organizational knowledge is not lost. An outplacement program should assist departing workers.

Business Planning The integrated organization will need a unified and coherent planning process to ensure the efficient use of capital. The operating and capital budgets of both organizations will need to be evaluated to properly support the new organization. Personnel in the target company will need to be educated on the existing forecasting process. Mid-flight projects will need to be evaluated and existing purchase commitments of both companies examined. A key aspect of business planning is the presentation of expected results to investors, creditors and other stakeholders. The perception of success or failure will depend in part on how the integration story is communicated. The Finance organization is critical to the development of the narrative.

Information Management The team leading the information management effort must focus on the integrated information strategy that will effectively satisfy the needs of regulatory, statutory and management reporting requirements. A transition plan is required to ensure the efficient integration and fair presentation of financial information. A particular focus should be placed on financial master data, such as cost and profit centers and the Chart of Accounts that will need to be mapped from the target organization to the buyer’s master data.

Liquidity Management A unified cash management strategy is required for the combined organization. Depending on the two organization’s cash management strategy, it may be necessary to reconcile the overall approach to liquidity management. In the event of an acquisition, the newly acquired business units would likely adopt the existing corporate liquidity strategy. The integration team should pay particular attention to the separation of cash between the old and new organizations in the event of an acquisition. In this event, cash receipts and payments will need to be sorted through to ensure that the buying and selling organization both receive the cash generated or supply the cash used by their respective organizations.

Risk Management Throughout the integration process, internal controls over both the buying organization and the newly acquired assets must be maintained. Financial statements will be issued and audited for the combined company, and management will need to make an assertion on the effectiveness of the internal control structure. Additionally, the company’s external auditors will evaluate the veracity of management’s assertions regarding the internal control structure.

Conclusion The Finance organization has a central role in the effective integration during a merger or acquisition. Focusing on these six areas will help ensure that Finance is well positioned for the integration effort.