Mergers and acquisitions will fail to deliver value if back-office financial systems aren’t integrated, warns Bryce Wolf
Delivering value through mergers and acquisitions (M&A) has always been challenging. They are complex affairs, as companies seek to agree valuations, combine cultures, align go-to-market strategies, and right-size staffing levels. Small wonder that studies consistently show a large proportion fail to deliver the anticipated value.
But when it comes to business finance, there is another core challenge, which is often downplayed: the need to combine the financial systems that are a critical part of any business’s operating model.
Recent research conducted by Vanson Bourne for Unit 4, focusing on 600 midmarket and enterprise professional services firms in the US and Europe, confirmed and highlighted this reality. In the study – Built for growth: Turning financial complexity into strategic advantage – respondents said that M&A is expensive, hard to get right, and time-consuming. That’s no great surprise – but what was clear is that most underestimated the challenge.
One factor is time. While some deals are done in just a few months, the average deal in the survey took eight months to come to a positive conclusion – but in about a fifth of cases, it took over a year. Eighty-six per cent of those polled said their deal took longer than they expected. The result: loss of focus, an inability to execute on business as usual, and frustration all round.
Why is M&A so tough and where are the specific sticking points? In short, the answer is a combination of business and technology challenges. In pure business terms, financial data inconsistency, personnel changes and stakeholder misalignment were the three biggest challenges. In technology, IT talent and resource allocation, incompatible systems and back-office process standardization were the anchors slowing down M&A progress.
Making M&A manageable and automated
Of course, ‘soft’ challenges such as culture are never going to be easy to resolve – but there are some practical solutions in play for other elements.
First, scalable and flexible software solutions are needed. Having a mishmash of conflicting and/or sub-optimal systems is going to lead to inconsistent results and a lot of legwork involved in figuring out anomalies. In our survey, 88% said that cash flow management is difficult to manage; just 46% reported that it is automated, with many organizations heavily dependent on Microsoft Excel rather than more specialized financial solutions.
Second, standardize. “Switching between systems is such a headache,” as one research panel member said. Partial automation isn’t working. Instead, leaders need to push for seamless integration between financial tools. Significant time and money is squandered on consolidating and correcting discrepancies. And that pain isn’t just felt at the sharp end: the research found that senior decision-makers are spending an incredible two days per week consolidating financials in the critical run up to year-end.
Third, build for rapid insight. Data islands – key data sets that are held in isolation, lacking integration – are a huge source of inefficiency. Those polled said that having real-time access to financial data, streamlined operations and the scalability needed for combined companies were valuable assets. Forensic, dependable and auditable financial insights let companies understand what’s happening now and what’s coming next. But today, manual work, such as that undertaken for payment reconciliation, workflow approvals, data consolidation, expense tracking, cash flow variance analysis, forecasting and budgeting, slows things down.
Fourth, find partners to help. The survey found that 90% of respondents see value in third-party help to augment cash flow management. Integrating systems, choosing the right vendor, and reskilling the workforce can all be accelerated with the right specialist help.
The path to M&A
M&A has matured over the years to become a more trusted path to growth. In the survey, 58% of respondents’ organizations had acquired companies in the last five years, and 48% had been acquired – with a quarter having done both. Even during the Covid period, M&A went on apace, such is the demand for growth and the economies of consolidation. But if the automated systems aren’t in place, then a lot of the benefits of M&A are squandered.
While this study focused on professional services – a sector that is growing fast, merging often, and facing more financial complexity than ever – the same barriers to realizing value can be found across verticals. They surface in all sizes of companies, too – albeit that small firms tend to be bigger laggards in adopting new technology to automate and streamline their financial processes.
Ultimately, a lack of joined-up systems means that finances are often unwieldy and may not even be trustworthy. That’s a poor combination for companies pursuing often-elusive growth. It also makes companies less attractive propositions to buyers, lowering valuations and extending deal duration.
The bottom line is that realizing value from M&A requires investment in modern systems – and prioritization by leaders of the work needed to make the move to streamlined operations that provide a single view of what’s happening in the business. Without that, the useful tool that is M&A is blunted forever.
Bryce Wolf is director for strategic growth in professional services at Unit 4
