Advice For CFOs Entering The M&A Process
Deal tips for CFO’s:
You’re a CFO at a mid-cap organization and about to become involved in an M&A process.
We’ve talked with seasoned M&A advisor James Rees of Eaglehawk Advisory and extracted some key advice.
Hit the planning pedal…hard
Planning is critical at the best of times, but an impending transaction really puts the pressure on. You may believe your planning is already thorough but the demands about to be placed on you mean you need to ramp it up even further.
Rees says there needs to be a very thorough technical analysis of the business up front to understand what impact the transaction will have.
Concerns that you don’t have the capacity in-house to do the analysis required can be answered by your adviser.
“That’s where a banker can add the most value,” says Rees. “They can help get you and your team up to speed and work out what direction they should take.”
Structure and tailor the information
An information dump containing all your business intel is not what’s required. Work with advisors to distil the most salient information for information memoranda. Structure it. Don’t muddy the waters with small details or information from left field. It will distract and can cost you the deal.
Use your objectivity
CFOs sit in quite a unique position within a company in that they are able to objectively and strategically consider not only the financial implications of a transaction, but the potential cultural fit, or otherwise. Business owners have skin in the game and often a very emotional attachment to certain issues.
Use your objectivity to the company’s advantage. As you well know, a lack of cultural fit leads to fewer synergies, which may cancel out the justification of any deal. Businesses within creative industries are ripe for this one, says Rees.
“That’s a classic in marketing and advertising where you have lots of creative people in small businesses and you put them all together and tell them to work together and it’s just not going to work.”
Take control of the Q&A process
You’re entering a process that will be extremely demanding of your time. Again, the use of appropriate tools and advisors here is crucial.
Setting parameters around the deal’s Q&A process is an incredibly efficient way to manage your time and marshal resources in the right direction. Not to mention the no-nonsense impression such control over this gives your bidders.
“We kept to our own time frame instead of someone else’s,” an ansarada data room client told us of his experience during a recent deal.
“We weren’t reactive, working till midnight to answer questions and on top of that, working even later to prepare further.”
When potential transactions enter the so-called second phase, as many as 700 questions could be asked over a six-week period. Avoid overwhelm. You can set a strict limit on the number and types of questions that can be asked.
Rees says one way to mitigate the question tsunami is to create a reward system for bidders.
“Say to them up front: you can ask ‘x’ number of questions but if you ask questions already available in the data room we’ll reduce the number of questions you can ask or we’ll take longer to answer them.”
Secure the information exchange
It’s an obvious one, but you’d be surprised. Cyber threats, hacking and plain old leaks are common, even in the largest and most complex deals.
Sony found this out the hard way when emails relating to its potential merger with Lionsgate were leaked by hackers. As a result, Sony shed 10% of its value in a week.
Stephen Dearing, ansarada’s VP – EMEA says that a leak, hack or just an innocent mistake can blow up an M&A deal carefully crafted over months or even years. “In exploring a merger or a takeover, strategy shouldn’t be discussed via email and certainly not on twitter,” says Dearing.
Twitter actually did this. Twitter CFO Anthony Noto shot this out on his social media platform: “I still think we should buy them. He is on your schedule for Dec 15 or 16—we will need to sell him. I have a plan.”
Use a secure data room
A secure virtual data room plays a crucial role in managing deal security and the marshalling the Q&A process. It gives CFO’s one less thing to worry about.
Security measures such as the ability to watermark documents or expire them remotely at any time, puts the seller in control and places onus on the buyer.
A CFO told us the use of an ansarada data room to manage a transaction gave him confidence and control.
“It meant there was accountability built in and that, in turn, makes you feel confident that information isn’t going astray.”