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Value creation in deals: Even in a crisis, the Finance function remains a key value driver in transactions

Claude Fuhrer Partner, Deals Strategy & Operations Leader, PwC Switzerland 09 Jun 2020

9 out of 10 transactions were deemed successful when the Integration/Separation of the Finance function was executed well. Thus, the Finance function seems to be an important player in preparing for and executing an Integration or Carve-out. How should the Finance Function be incorporated into a transaction and what makes a Finance function successful?

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Although almost every company around the world faces unexpected challenges due to the current COVID-19 pandemic, we are confident that Mergers and Acquisitions (M&A) will remain important in both the short-term and long-term. Companies considering M&A activity need to be able and willing to pursue a transaction, which requires both adequate capital and the right deal strategy. In this current scenario, where the outcome is not known, value preservation is critical, and with that the need to prioritize finance and liquidity becomes even more important. In addition, independent of the crisis, experience shows that deals are extremely complex and challenging for any organization. Dealmakers have to focus on creating long-term value in order to realize synergies after acquiring a business or carving out parts of a business.

Our new study report looks at value creation in deals from the perspective of the Finance function and the influence of the Finance Integration /Separation on the overall Deal. Finance is an essential function within every company and is involved in almost all corporate activities. Especially during crises, the Finance function is a company’s anchor that ensures survival by monitoring the company’s situation, securing the cash position and constantly performing (liquidity) forecasts. Due to these crucial roles within a company, it seems to be plausible to assume that the Finance function is also quite important in the overall transaction and that the success of the specific Finance function’s Integration /Carve-out is instrumental to the overall M&A success.

The survey results confirm the underlying assumptions: 87% of respondents who were successful at integrating or separating their Finance function also experienced overall deal success. Furthermore, the success of the Finance Integration /Separation accelerates the overall transaction speed.

Finance function’s contribution to value creation

To better understand how the Finance function can contribute to value creation in deals, the study looks at which Finance activities are especially crucial for the success of the overall transaction. For that, three major factors were identified:

  • Involve and empower the Finance function
    Early and in-depth involvement of the Finance function in the overall transaction, especially prior to signing, is crucial to be successful. Additionally, in order to share important knowledge about the organization, Finance representatives should be empowered to take ownership of specific areas of a deal. Especially, in terms of project organization and decision-making Finance is crucial.

  •  Engage the Finance function in cross-functional activities
    Finance’s activities should not be limited to project steering and Finance topics, but rather the Finance function can drive cross-functional work stream coordination. 2 out of every 3 study participants indicated that the task of integrating or separating legal entities was assigned to the Finance department – with 71% being successful.

  •  Entrust the Finance function with overall synergy management
    Synergy management brings an opportunity for Finance to leverage its experience and knowledge of the business. Because Finance liaises with every other function when performing budgeting and other cost related tasks, it is in a strong position to analyze synergy opportunities and, critically, ensure that all other functions deliver the predicted growth, profitability and efficiency potentials.

Enhancing Finance Integration/Carve-out performance

Besides the responsibilities in the overall deal, the Finance function has to focus on its own Integration or Carve-out. So, what are the key factors contributing to a successful Finance Integration/ Carve-out?

  •  Pre-Deal success factors
    Adequate preparation is crucial to address the complex and time-consuming challenges which arise during a transaction. Better preparation directly correlates with increased deal success and thus, the right starting point for preparation is crucial. Usually, the earlier the better.

  •  Stabilization phase success factors
    The key task for this phase is to provide the required management information and to enable business continuity. Creating clear roles and responsibilities and implementing a structured methodology are two of the most influential stabilization measures as they create a common understanding of project activities and guide project stakeholders.

  • Value Creation phase success factors
    Measures for creating long-term value – the main target of almost all transactions – are centered around keeping the project structure in place after the deal closes in order to ensure key activities which need to take place to achieve financial targets are reached. Also, never forget to be agile and to adjust the structure and procedures to situation specific to the current transaction.

  • Change Management
    To alleviate the employee concerns associated with a transaction, change management is critical during all phases of the deal. A few of the most effective ways to enact strong change management are regular and early communication, timely leadership appointment and employee retention.

Based on these success factors and the other findings of the study, we have composed a list of seven recommendations to help to navigate your next Integration/Carve-out project. You can find this checklist in our study report, next to other interesting insights specific to the Private Equity sector.

Especially in times of an unexpected crisis with unpredictable development, it is vital to keep control over the business, be agile to rapid changes, and ensure value is both preserved and also grown when opportunities arise. Whether your transaction is already in-flight or planned for the future, the Finance function can be leveraged to drive the Integration/Carve-out further in order to create as much value as possible. The developed checklist provides you a high-level template of key topics to focus on for a successful and value enhancing transaction. However, every transaction is unique in terms of associated company culture, structure and scope, and therefore needs specific approaches and strategies tailored to that situation. We as PwC have experience across a number of transactions which provides a broad knowledge base of scenarios you may be facing on your next M&A opportunity and can work with you to identify the individual success factors for your specific project.

To receive all the interesting results and insights of this study, download the report “Value creation in deals – Finance Integration and Separation”, where you can review the services we offer, start discussions with our experts, and make your future transactions even more successful.

Contact us

Claude Fuhrer

Claude Fuhrer

Partner, Deals Strategy & Operations Leader, PwC Switzerland

Tel: +41 58 792 14 23