Both big businesses and small businesses have been indelibly impacted by the fallout from COVID-19, and mergers and acquisitions have become much more appealing for both in recent months. According to Marketplace, the summer of 2020 was the busiest in decades for mergers and acquisitions with more than $1 trillion worth of transactions around the world in the third quarter. Why the sudden surge? Experts believe that in a turbulent economic market, smaller companies need access to bigger corporations’ cash and large corporations can get better value.
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As more companies are considering or completing M&A transactions, it’s important to consider all steps necessary to successfully combine two organizations. Mergers and acquisitions are notoriously messy and the integration of two business cultures, two sets of potentially redundant employees, two disparate operating systems, two brands, etc., can be an exhausting process for both organizations. Many M&A transactions lead to unforeseen costs, especially if their accounts payable and receivable systems are poorly integrated. It opens the door to confusion about financial metrics and reporting; employees leave, and institutional knowledge is lost.
Start with Your Spend
To remedy, when companies are considering a merger or acquisition, they should also be considering AP automation investments to enhance visibility within the new combined organization and create opportunities to eliminate previously manual and inconsistent processes. Once automation is synchronized and the two companies’ financial systems are one, you now have human capital to take on more high value tasks, lessen stress within the ranks, and focus on being good partners to vendors.
When introducing AP automation after a merger or acquisition, several benefits materialize:
- Redundancies in financial processes, software, or vendors occur
- Expenses can be better aligned with vendor volume insight
- Duplicate expenses, such as memberships, tools, or software costs are more easily identified
According to Accenture, “When two companies merge, integrating their Finance functions is a major imperative. Variations in financial standards and procedures can prevent the merged entity’s Finance function from effective daily operations, impacting both internal and external stakeholders. Integration of this key function is also time-sensitive: the entity’s leaders, not to mention investors, demand consolidated financial statements with earnings and projections as soon as possible. Additionally, many of the potential gains from a merger cannot be achieved without committed support from Finance.”
Both parties involved in the merger or acquisition need to have detailed plans in place beforehand so that they can continue to meet their financial commitments. These commitments can include reporting and earnings guidance for stock exchanges, compliance agencies, financial institutions and investors; internal reporting for management; billing, collections and cash applications for customers; and invoice receipt and payment for vendors.
The Path to Success
The Institute for Mergers, Acquisitions and Alliances lays out 10 critical success factors for finance function integration:
- Define the future-state operating model.
- Assess potential synergies and assign ownership and tracking responsibilities.
- Establish the “must haves” for Day One.
- Establish the “like to haves” for Day One, taking lead-time into account.
- Announce the Finance leadership for the new company.
- Identify key people and the risk of their exit, and work to minimize loss.
- Set full-time integrators in Finance to drive the process and deploy reliable resources as needed to backfill them in operating the daily aspects of Finance.
- Set details, clear milestones and manage accordingly.
- Work closely with IT for the Day One and future-state framework.
- Build momentum for a larger transformation of Finance.
No matter the integration plan, automation will undoubtedly play a part. Which processes get automated, become “must haves” versus “like to haves”, will vary from case to case. Thankfully, financial process automation can be done quickly, and the merger or acquisition doesn’t need to be held up for process automation planning and implementation to take place.
Not only can the right AP automation system provide detailed analytics that can help your finance team address many of the issues above, but you will have access to analytics that also offer you an overall view of expenses. The right AP automation partner can give you a quick, big picture view of your finances while also making your workflow more efficient.
When selecting a financial tech partner to facilitate process optimizations across the organization, it becomes imperative to choose one that provides training and eases the minds of the already stressed employees. This will reduce turnover among the Finance Team. Accenture stresses the return on investment in automation of financial processes: “Only through proper investment in process and system automation, such as integrating financial and management reporting processes and tools, can the cost of Finance be reduced, service levels to the business be optimized, and finance function synergies be realized.”