Financial directors have faced the big challenge of managing company’s funds in the uncertain reality caused by the coronavirus crisis. Even more, they have to constantly look for new investment opportunities and make strategic decisions related to the company’s adaptation to the changing market. Does this situation require CFOs to take over some responsibility and develop competences of investment advisers, especially in the context of mergers and acquisitions? What is the role of the CFO today?
We asked Łukasz Meissner, Managing Partner at theCFO, member of Association of Chartered Certified Accountants (ACCA) and the Institute of Interim Management (IIM), for his opinion.
Łukasz Meissner: Analyzing the competences of financial directors in M&A processes, at the beginning I would distinguish the context of selling an enterprise, assets or shares from the acquisition of another company. Here, I would like to focus on the first of the contexts.
When selling a company, M&A competences should be considered in the context of analyzing the company’s sales process, which in short will include such activities as: preparation of marketing and information materials (information memorandum, teaser), roadshows and presentations of the management board with investors, dealroom preparation, Due Diligence research, Q&A with investors and their advisers, negotiating the purchase offer and transaction documentation, as well as transaction closing procedures including debt restructuring, which may be closely related to closing procedures.
From my personal professional experience (as a former CFO and a transaction advisor for eight years), I can say that most CFOs have not had contact with M&A processes, only some have had one-time experience with it, and a handful have participated in M&A transactions more than twice.
It seems that the competences of CFOs in the field of holistic management of the M&A process have not changed significantly in recent years and it will be difficult for financial directors to replace transaction advisers or other members of the company’s management staff.
The financial director still works in sections, especially in such areas as, for example, preparation of a virtual data room, Q&A with investor’s advisors as part of due diligence procedures or debt restructuring as part of closure procedures. In terms of other areas of the transaction process, other managers in the company being sold or external advisers seem to have more appropriate competences.
For example, information materials about the company should contain strategic information (e.g. business plan, market status and trends, market shares, competitive advantages and barriers to entry), organizational and HR (e.g. organizational structure of the company, key managers and employees, key competences) or regarding the portfolio of products and services offered by the company.
In this case, the company needs a whole team of people with different competences, who will together create a high-quality and informative information material about the company – one that will interest investors. It will be similar in the case of negotiating a purchase offer or transaction documentation – apart from a lawyer experienced in M&A transactions, the most decisive and best-informed people in the company are necessary, especially the CEO and shareholders.
The transaction/investment advisor on the one hand, and the investors and their advisors on the other still remain the binding agent of the transaction process. The advisor manages the M&A process from the technical side, acting as a project manager.
Nevertheless, I see a much more important role of a transaction advisor (who often has several or even several dozen M&A transactions behind him) in the soft spheres. Let me indicate just a few examples of competences – the advisor shares his knowledge / experience with the client and educates the client, and thanks to his network of contacts, he also acts as a business intelligence agency.
The advisor is also a prudent negotiator on behalf of the client, identifying as early as possible the “deal breakers” for which he finds the most appropriate solutions. M&A transactions are, to a great extent, also focusing on the relationships and emotions of the parties – many transactions fail due to the lack of relations or controlling emotions of participants in the process – and the role of the adviser is to ensure the best possible relations between the parties and a good climate of cooperation, and in crisis situations – averting smoldering conflicts.
In conclusion, I do not see any new trend that would indicate the growing role of the CFO in the M&A process. COVID-19 does not have a major impact on the role of the CFO in M&A processes – the CFO still remains an executor (contractor) in the preparation of financial, tax or legal materials, data room administration and due diligence coordination.
The role of the CFO is very important when deciding whether to sell or acquire a company, as well as when analyzing historical financial data and business plans: nevertheless, this competence has been, is and will most likely remain the domain of a CFO.
Thank you for your insight!