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A Merger’s Success Is the CFO’s Job

Today’s chief financial officers are valued analysts who can ensure that mergers achieve scale, grow the existing business, and increase shareholder value.

(originally published by Booz & Company)

After a hiatus, mergers are back in style. In 2004, more M&A money was spent than in any other year since 2000. And this year, there have already been blockbuster deals involving Procter & Gamble and Gillette, SBC and AT&T, Novartis and Eon, and MetLife and Citigroup’s Travelers Insurance.

But if the past is a guide, most of these deals will end unhappily. Numerous studies, including a 2001 Booz Allen Hamilton survey, have found that fewer than half the mergers that are concluded will ever achieve scale, grow the existing business, or increase shareholder value. A primary reason for this woeful record is lack of preparation and follow-through. In most organizations, no one is given the task of holistically overseeing the success of mergers from concept to closing and beyond — even though for many companies, mergers are a primary growth vehicle.

In today’s business environment, this can be avoided. Chief financial officers have evolved well beyond their stereotypical roles — accountant and “organizational police officer” — and today are valued analysts and strategic business partners to senior management. Although it’s not widely recognized, even by some CFOs, these executives are in an ideal position to be involved in all aspects of proposed transactions. CFO responsibilities in a merger typically include:

• Producing premerger analysis and due diligence. CFOs typically have the greatest leverage in ensuring that bad deals never happen in the first place. They bring rigor to the assumptions and analysis behind transactions, and ensure that future business performance commitments are consistent with the assumptions originally used to justify the deal.

• Executing the transaction. Finance chiefs oversee deal-related accounting, the structuring and execution of merger-related agreements, cash and financing requirements, and other details necessary for operation of the merged company on day one.

• Creating a strong, stable control environment. CFOs drive the rapid integration of accounting policies to prevent a nightmarish first reporting period following the merger. This involves implementing adequate controls not only for the combined company, but for both organizations during the period before the merger is finalized; training the organization on new policies; and (in the U.S., at least) ensuring compliance with Sarbanes-Oxley Section 404.

• Integrating the two organizations. CFOs must be certain that the right management information systems are developed to let top executives run the combined company effectively — and that those systems are in place the day after the merger is completed. For example, customer profitability data should be available in a manner that lets managers compare performance from both premerger companies on an apples-to-apples basis.

• Designing the postmerger management architecture. CFOs must plan essential management processes for the postmerger environment. Many mergers have been stifled when two management teams sitting across the table from each other after the close cannot understand how their reports, programs, commitments, and processes might fit together.

• Providing financial decision-making support. During integration, many high-stakes choices are made that will affect the organization for years to come. CFOs need to arm integration teams with objective resources to make fact-based management decisions as they move through the process. This includes planning and quantifying synergies so they can be incorporated in future budgets and, later, in concrete commitments.

• Delivering guidance to investors on when to expect returns. CFOs do this in partnership with the CEO. This duty requires that performance targets be clear and business units be accountable for the financial objectives set for them. CFOs can be foiled by losing track of merger-related costs and not harmonizing integration planning with financial forecasts. It is critical to deliver expected results to Wall Street right out of the box.

To be sure, this is a lot for CFOs to do. But no other person in the organization has a vantage point that so effectively enables him or her to play the role of merger manager. Still, to tackle this role, CFOs need to stop viewing each merger as a fire drill and instead prepare for mergers ahead of time by shoring up everyday capabilities in their organizations. We have learned from our experience working with chief financial officers — and from an in-depth study of 17 leading global CFOs for the 2005 strategy+business/Booz Allen Hamilton book CFO Thought Leaders: Advancing the Frontiers of Finance — that the most successful of these executives have developed strong planning and performance-management skills in their teams. These measures lead to improved discipline in quantifying and capturing M&A synergies.

Deploying finance resources intelligently in a merger is a process that begins prior to the deal with anticipation of all the roles the group is likely to play. It is critical to develop an overall blueprint with a clear timeline that lays out what decisions will have to be made and when. When a CFO prepares in this way, he or she is in a unique position to help the CEO realize the value that all too often slips through the cracks of a merger.

A merger can be a hair-raising experience for unprepared CFOs — pushing their finance organizations beyond the breaking point. We have worked with and learned from CFOs and companies that have managed mergers the right way, and their experience provides a positive counterpoint to the generally dismal results mergers produce. With nobody else in the position to do so, CFOs should lead the organization not only in selecting the merger partner, but in ensuring that the expected value of the transaction is realized. Having taken the right steps beforehand, the chief financial officer should be ready to meet these new challenges in a disciplined way.

Author profiles:

Frank Galioto ( is a principal with Booz Allen Hamilton in Chicago. He assists clients with organizational transformation, finance and corporate headquarters effectiveness, corporate planning, and performance management.

Cindy McNeese ( is a vice president with Booz Allen Hamilton in Chicago. She focuses on helping clients develop high-performance information technology environments.

Gerald Adolph ( is a senior vice president with Booz Allen Hamilton in New York. He specializes in mergers and major restructurings.
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