Integration Planning Tool Series: Part VI of VII

This is the sixth of our seven-post series discussing some of the challenges associated with integration/combination planning and sharing key considerations for CEO and Private Equity Sponsors looking to grow through Mergers & Acquisitions (“M&A”). As we shared in our first post in this series, Vector Advisory Services has created a complimentary M&A Integration Planning Tool to assist business owners and sponsors in evaluating and resource planning for key aspects of business combinations. We previewed this 25-point assessment tool, which includes five critical elements across five common functional pillars, to help leaders focus and assess resource needs to successfully integrate a business.  This post discusses the Finance & Administrative functional pillar, and its associated five key elements:

1. Finance & Accounting Management
2. Finance & Accounting Operations
3. Supplier & Customer Contracts
4. Legal Entity Rationalization and Tax Efficient Structuring
5. Compliance

Finance & Accounting Management: Focus areas include fiscal control, treasury and banking, budgeting and forecasting, and accounting policy. Accounting policy harmonization is generally a priority; however, areas that may be overlooked during early discussions include: CAPEX, revenue recognition, impairment, reserves, internally developed software, etc.  Grants of authority, span of control, and approval thresholds (including system/automated approval workflows) should be reviewed and updated as needed. Post-close accounting deliverables must be prioritized to ensure timely completion, and in most cases interim support is extremely beneficial. Banking relationships should be consolidated and optimized, as able, with access and signers updated as needed. During the overall banking and treasury discussions, consider whether pay cards, gas cards, credit cards, lock boxes, etc. are used. Also consider supplier payments and customer payments to determine if additional operating accounts are needed. Tools leveraged for financial management should be assessed to ensure they are viable for the combined company – including tools for budgeting, forecasting, flash reporting, management reporting, treasury management, etc.  As discussed across the other functional teams, the overall organization structure for finance and accounting including roles and responsibilities must be clearly defined and communicated. Tip – Post-close accounting deliverables (e.g., opening balance sheets, working capital adjustments, monthly reporting packages, etc.) may be completely new territory for a company.  For example, if this is the first M&A transaction for a company, the reporting requirements may require interim subject matter experts due to lack of internal expertise and/or capacity.  Additionally, monthly reporting packages (PE required, lender, covenant) may also require additional support for initial set up and ongoing monthly maintenance. Leveraging external parties provides capability and capacity during an extremely critical integration phase.

Finance & Accounting Operations: The optimal goal is to leverage a single financial system for financial reporting and consolidation; however, this is generally a longer-term initiative due to confirmation of system viability and data migration requirements. (Refer also to the previous post on Technology). Further, a standardized approach to month-end close, cutoff timing, and a close calendar should be established and communicated to key stakeholders. Banking covenants must be understood and appropriate monitoring and reporting established. Additionally, processes around the use of lock boxes, cash disbursement, cash application, and collections on aged accounts receivable should be prioritized. Tip – While invoice template standardization is often included as an integration task, intercompany billing practices are often overlooked during pre-close discussions; thus, if intercompany transactions are anticipated post-close, then early discussions regarding approach, process, and recognition will help expedite integration post-close.

Supplier & Customer Contracts: Customer and supplier contracts should be reviewed to determine consent or notification requirements as well as terms and conditions that may need to be standardized (partner with legal as needed).  Additionally, the ongoing process for customer and supplier contract review (as well as vendor and customer data consolidation – i.e., vendor master, customer master) and approval should be clearly defined and communicated. Suppliers and customers should be reviewed to identify overlap/shared relationships, which may identify negotiation opportunities and/or cost synergies.  Tip – Consider the overall brand management strategy when considering contract harmonization. Overall vendor management process, including vendor scorecards, should be standardized in alignment with the vision of the combined company.

Legal Entity Rationalization and Tax Efficient Structuring: Pre-close priorities include a review of the legal entity and structure to ensure a tax efficient strategy. Further, company name changes and resulting registration requirements should be confirmed and prioritized accordingly. Tip – Directors designated on registration documentation should be reviewed and updated as needed.

Compliance: All compliance and regulatory requirements should be identified across the combined company (e.g., GDPR, PCI, and other state or local regulatory requirements). A unified approach to overseeing and managing ongoing compliance processes should be prioritized. Tip – During pre-close or diligence discussions, ensure prior non-compliance issues have been identified and addressed. If remediation items remain open, consider the impact to the transaction as well as post-close integration. 

Defining the vision of the integrated state for each functional area is critical and it should be outcomes oriented.  The following is a set of example outcomes or priorities that your team may consider, revise, expand, and tailor as it relates to the Finance & Administrative pillar.

1. Alignment on finance and accounting organizational structure, roles, and responsibilities
2. Post-close accounting deliverables recorded and finalized
3. GAAP Compliance
4. Unified financial systems and consolidated financial reporting
5. Harmonized accounting policies and procedures, including revenue recognition, invoicing, payables, expense reimbursement, credit card program, communication
6. Consolidated treasury and banking operations, including integrated cash flow management
7. Harmonized budgeting process
8. Renegotiated and consolidated corporate/general insurance coverage
9. Aligned statutory reporting and compliance requirements (e.g., tax compliance, state/corporate audits)
10. Aligned vendor contracts, subcontractor agreements, client MSAs, and overall contract administration and management

We would love to hear your thoughts about any additional Finance & Administrative critical integration activities.  Stay tuned for our series recap summarizing the functional pillars included in Vector Advisory’s M&A Integration Planning Tool. You can also download and use the tool for yourself on our website here.