What Is the Role of a CFO in Mergers and Acquisitions?

 
The role of a Chief Financial Officer (CFO) is evolving.
 
In recent decades, financial leaders have taken on evermore responsibility regarding corporate financial strategy, growth initiatives, and other value-adds outside the traditional accounting purview. 
 
Of the various tasks a modern CFO must handle, few, if any, are as critical as their role in mergers and acquisitions. As  McKinsey notes , “When the finance chief is directly involved in identifying potential synergies, transformation and value-creation opportunities, and cultural pitfalls, companies see greater deal success.”
 
But why is that? What is the role of a CFO in mergers and acquisitions?
 

Getting M&A Right

 
M&A deals represent a potential avenue for companies to gain significant value. But because of their innate complexities, end results may not always be positive.  
 
In a modern M&A business climate defined by escalating competition, unprecedented levels of deal activity, and sky-high valuations, a CFO could be the “it factor” that a deal hinges upon—the difference between success and failure, whether on the buy or sell side. 
 
As the financial leader of the company, a CFO plays an integral role in:
 

• Managing cash flow
• Capital allocations
• Planning and budgeting
• Forecasting and analysis
• Growth and strategic planning

 
So, although the CEO will be the driving force of an M&A deal, a CFO can share the burden of many of the chief responsibilities necessary to ensure that the deal moves forward—so long as the CFO can verify that the potential ROI outweighs the risks. 
 

• On the sell-side  – CFOs can make sure that potential buyers have accurate and relevant financial information to inform their decisions. Ensuring successful outcomes involves maximizing the company’s appeal while mitigating weaknesses. 
• On the buy-side  – CFOs can help manage the deal’s potential risks, plan the integration strategy between the two entities, and map out the potential benefits such synergies will provide. 

The Role of the CFO in M&A

 
CFOs have the opportunity to play an even more significant role throughout the entire M&A process as they shepherd it toward successful outcomes. Key areas of interest may include: 
 

Determining Deal Fit 

 
Successful M&A is more than simply getting a deal done. It is about knowing whether the deal should be done in the first place. So, before discussions about an acquisition can even begin, a CFO must be one of the first analysts to determine whether the proposed deal is even worth the risk by asking questions like: 
 

• Will this help the business achieve its long-term goals?
• Will the target company integrate smoothly into the existing corporate structure?
• Are there synergies or efficiencies this deal will help realize?
• Is there a good cultural fit between the two entities? 
• Will stakeholders be excited about the deal?
• Does it align with the company’s big picture? 

 
Demonstrating caution and restraint can help a business avoid wasting time and money on a fruitless process.  
 

Establishing Vetting Guidelines 

 
The CFO and their financial subordinates are the ultimate screening mechanism for M&A. Whether buying or selling, it is their job to vet the other company to ensure that the deal is worth making, asking qualitative and quantitative questions about factors, such as:
 

• Pricing expectations 
• Value adds
• Risk

 
A robust vetting process depends heavily on the set criteria. According to  Frank Chaiken , leader of the corporate & transactions practice group at Thompson Hine: 
 
“These guidelines might include both positive criteria, such as sources of existing value, as well as negative. The most critical factors to identify are a potential risk, hidden value, and opportunities to increase profitability without damaging the unique qualities that made the business an attractive target in the first place.”
 
Taking these precautionary actions helps a company narrow down its list of potential buyers, investors, and acquisition targets. 
 

Creating a Transaction Plan 

 
After leadership has determined that yes, in fact, this is a good deal, their next task is to justify it to the board and other key stakeholders. And in that, the CFO plays an essential role in performing due diligence and then crafting a transaction plan that they will later pitch to the board.  
 
The CFO will outline a list of financial requirements and benchmarks that stakeholders must understand and agree to before negotiations begin. In order to create this baseline argument and then ensure the end goals can be met upon deal completion, the CFO and their financial team must: 
 

• Assess for potential synergies
• Create forecasts and scenarios
• Involve key leaders in ongoing discussions
• Interweave synergy targets into existing financial processes 

 
Equipped with this information, the CFO can readily explain the merger or acquisition’s value to the board and begin assisting with negotiations.
 

Closing the Deal 

 
Once the process has entered the transaction and negotiation phase, a CFO becomes one of the chief mediators. Their ultimate goal is to maximize synergies and derive as much value from the deal as possible. In that regard, a CFO may assist by: 
 

• Preparing all relevant documents (especially on the sell-side), including:
• Financial statements
• Budget and sales projections
• Tax returns 
• Capital structure and capitalization table
• Employee data
• Fixed and variable expenses
• Equipment and inventory valuation
• Cyber security compliance 

• Supporting the CEO in their strategic negotiations
• Speaking regularly with their counterpart on the other deal team to ensure that they have all the information, data, and documents they need
• Creating a due diligence schedule so that both parties are aligned

 
The goal here is not to close the deal as quickly as possible. Rather, it is to close when both organizations are ready, risks have been managed, and all opportunities identified. 
 

Post-Acquisition Planning and Execution

 
Two of the more common reasons why a deal fails to generate the expected ROI come down to an inability to bridge the cultural differences between the two organizations and poor post-close execution. 
 
In either regard, a CFO can and should play a crucial role in planning for and mitigating such issues by taking steps such as:
 

• Outlining acquisition goals and the company’s future desired state
• Aligning leadership with the plan
• Emphasizing the importance of human capital on either side of the deal
• Documenting business-critical processes and systems
• Taking steps to orient the business cultures