IMGCAP(1)]While 2015 was one of the biggest years ever in volume of mergers and acquisitions, 2016 is turning out to be a different story, with many deals failing at the altar. Pfizer’s $160 billion attempt for Allergen, and the failed merger of oil rivals Halliburton and Baker Hughes, are just two high-profile examples of the way changing regulatory and industry conditions can stymie high-stakes gambits and force wholesale re-evaluation of corporate strategy.
Dealmaking can be a lot more complicated than most companies predict, and studies say that 70 to 90 percent of the time, mergers fail to meet the long-term financial goals they were drawn up to fulfill. For executives pursuing a merger, tax rulings like the recent change on inversions, and volatility in commodities and foreign exchange, are just a few x-factors that can make or break a deal. To make it to the financial close and deliver the promised returns, finance executives need to be equipped with real-time insights to evaluate transactions in the moment, and at each step of the way.
Historically, large enterprises have taken the business warehouse approach to mergers and acquisitions—taking all the disparate data, dumping it into a single system and hoping a comprehensive and accurate report comes out. This can be very messy, ugly work requiring a great deal of manual involvement to make sure reporting is accurate. Furthermore, with this approach, companies rarely get the granularity needed for management and analysis purposes.
Fortunately, advances in in-memory, big data analytics, cloud and mobile technologies are creating a new digital finance function where finance executives can manage with better insight and agility. Cycle times and flexibility are crucial when deals come to fruition as well as when there is a need to pivot in another strategic direction. Here are some M&A best practices and how technology can help finance departments make the process as painless as possible.
• Create a centralized finance system: Inadequate visibility into enterprise performance and a lack of understanding of the impact of potential business changes on drivers are common reasons for deal failures. Bringing together disparate transaction level data from existing solutions—combined with potential acquisitions or mergers in an environment allowing for flexible modelling, simulation and prediction—is key to uncovering new opportunities, reducing cycle time and accelerating value.
• Standardize workflows and syndicate best practices: In tandem with creating a centralized finance system, it is crucial for financial departments in the midst of a merger to quickly syndicate best practices across the board and standardize workflows to ease processing, analytics and reporting.
• Forecasting a variety of outcomes: Finance professionals must offer a wide variety of financial analysis, based on detailed and harmonized data, to understand the true impacts of potential mergers or acquisitions. Through timely what-if scenario analysis, companies can ensure they are enabling fast, nimble changes in course and consistency across the enterprise.
• Turn data into insight: This enables informed, quick decisions and forecasts in order to nimbly adapt structures, processes and business models to new opportunities and circumstances. For example, most investment bankers or M&A advisors will want to know the company’s EBITDA across a number of different scenarios. Knowing this piece of data is crucial for gaining insight on how much debt the business is eligible for or what the company is worth if you’re considering selling.
• Enable real-time access at any level: Companies looking for a sale without quick visibility into key drivers, sales pipelines and backlogs often struggle to pass a quality of earnings audit. In order to get the granularity needed throughout a financial merger, companies need access to up-to-date information at every level of detail, instantly, from anywhere and any device.
As companies continue to ride the mergers and acquisitions wave, there are many considerations that need to be made during the deal-making process in order to best promote and foster success. By leveraging data analysis, companies can make the M&A process much more efficient.
If you are the buyer, data provides assurance that assets can be valued and repurposed for your business needs. If you are the seller, data is a surefire way to build trust and demonstrate company value. With this year’s trend of M&A fails, the odds appear to be stacked against dealmakers.
To merge financials and ultimately see success, today’s finance departments can’t rely on outdated data warehousing approaches. Instead they need to embrace digital to advance the finance function and ultimately ensure a smooth transition process and improved ROI.
Thack Brown is the global head of line of business finance at the business software developer
