Mergers and acquisitions slowed substantially in 2022 as companies faced a mix of financing challenges, including rising interest rates, a pullback in leveraged finance, bond-market jitters, and the recent recession.[i]
The total value of M&A deals announced globally fell 37% last year from 2021’s record high, to $3.61 trillion, according to financial data company Refinitiv. That’s the biggest year-over-year percentage drop since 2001, a year when the U.S. economy slid into a recession and the value of global deal making plunged 50%, to $1.68 trillion, according to Refinitiv. Still, last year’s results were roughly in line with pre-pandemic levels.[ii]
A recent Wall Street Journal article states that “M&A Is expected to pick up in 2023 as companies adapt to tougher conditions. Financing challenges disrupted deal making last year, but many companies adjusted in ways that sidestepped market volatility or minimized costs.”[iii]
A recent “Deal Makers Sentiment” report from the research firm Intralinks predicts that roughly two-thirds of respondents (62 percent) expect overall levels of M&A activity to increase in the year to come — including 23 percent who forecast a significant increase. And despite the considerably different market conditions, this result is notably similar to last year, when 24 percent of those polled said they expected activity levels to rise significantly and a further 40 percent expected it to rise somewhat.[iv]
There’s also the fact that companies may be struggling in the recent economic downturn (recall the recent mass layoffs as reported in my previous LinkedIn post), which, combined with poor financials can make them a target for acquisition.
M&As will rebound in 2023 and beyond. Are you prepared for it?
I see it all the time. One company acquires another, or two, or many, and the parent company’s accounting department is just not ready. So now they’re stuck with two different accounting systems—or even more if the parent company has been on a buying spree—different software, different accounting processes and workflows, different user interfaces, different data, different reports, different policies, etc., etc. And with a new acquisition, everyone needs to be trained and fully up to speed ASAP; at least within the first 90 days.
This situation can get even more complicated if you add in tax software, expense management software, a CRM, and other components. (The average company uses 110 SaaS applications(!)[v]) To make matters worse, oftentimes the acquired company is doing a lot of the processes manually, using “swivel chair computing” to move data between these disparate systems.
It can become a real mess.
As a financial professional, this is your challenge: you should be knowledgeable about what your team needs to do in the case of a merger or acquisition. Unfortunately, very few people – or companies – have processes and systems in place to smoothly transition into or with a new company. Acquired organizations are typically underinvested in back-office technology. They tend to be on more entry-level systems like QuickBooks or Xero; and whatever the software is, Murphy’s law says that it will definitely not be the same as the new parent company’s system.
Companies that are looking to merge, acquire or be acquired must automate their operations to the greatest extent possible—and do so on one system. And to bring all of these systems together into one, I recommend NetSuite. NetSuite is a cloud-based ERP system that consolidates and automates office processes into one simple to use system. Call it a “single pane of glass” to easily see and work all of your back-office processes.
For me, consolidating key back-office functions onto a single system like NetSuite provides four key benefits:
Higher confidence that the merged companies will deliver the predicted results. According to a recent Harvard Business Review article, between 70 and 90 percent of acquisitions fail. The most common explanation for this number is the problems associated with integrating the two involved parties. Simply put, M&A deals fail because of poor planning, poor execution, or both.[vi]
But, forewarned is forearmed. Knowing of the possible problems and pitfalls gives you a tactical advantage, and a chance to preempt the potential issues by proactively automating your processes. Get out in front of any problems before they occur.
I strongly advise that you adopt an ERP automation system like NetSuite within 90 days of the deal closing.
Here’s why: Organizations often need help accurately measuring and reporting on financial performance, adopting common processes and controls, and being proactive on investor relations. All of these are difficult to achieve using manual, disconnected systems. I think that NetSuite is particularly strong here, enabling companies and their advisors to better deliver an acquisition plan, helping them understand where each party is now and exactly how a combined, post-transaction company will perform. So, better predicted results. These are crucial to any deal.
Agility. Time is always of the essence in M&A deals. To expedite the timelines, NetSuite offers a cool, pre-packaged set of NetSuite products and support, called NetSuite SuiteSuccess. It has built-in best practices that support rapid implementation timelines, which, to me, helps post-M&A companies get up and running very quickly. I recommend it to many of my Kranz clients.
Automation equals efficiency. And accuracy. Recalling the aforementioned “swivel chair computing” scenario, it’s just plain common sense that if you automate your manual processes, your accounting team will be more efficient and more accurate. To me, automation isn’t enough; you need automation with integration. And that’s where NetSuite shines. NetSuite effectively manages, automates, and integrates with your company’s systems, from financials to ecommerce to customer relationship management and beyond. And NetSuite provides a tiered IT approach that’s easy to adjust as the company expands, including through more acquisitions.
And that trend will expand: A majority of companies will be using acquisitions as a key growth strategy in 2023. According to a recent Citizens Bank report, “management teams say they are looking to M&A as the primary growth driver for their companies, as opposed to organic growth.”[vii]
Growth through acquisition, vs. selling, will be an upward trend in 2023.
Expert guidance before, during, and after the deal close. As part of the finance team, you will very probably be involved in the deal before it’s structured, and before the purchaser completes thorough due diligence on various aspects of the transaction. When the financials are incomplete or don’t reflect current reality, that’s a red flag. And they will be looking at you to explain why. If you already have NetSuite in advance of an acquisition, you’ll be better equipped to analyze the viability of the prospective deals before they happen. And then, once you’ve acquired the company, you will have the proper tools to understand how the acquisition is going, i.e., with timely and relevant reports, etc., and thus will be better informed to make any necessary adjustments to ensure optimal results. In other words, you will have a sharper saw to cut through to the real issues and adapt in real-time.
Combining an integrated back-office automation technology like NetSuite with a set of tried-and-true organizational best practices can help a newly combined company beat those 70% odds. I know. I’ve seen it happen.
I’ve done a number of back-office consolidations for companies who’ve recently merged. I think that my personal “best” (worst?) consolidation experience was bringing five(!) recently acquired company systems into one. Thanks to NetSuite we were able to pull it off. NetSuite is truly the best way to go for back-office systems in an M&A scenario.
Note that automation is just the first step, but it’s a very important one that will pay huge dividends in efficiency and accuracy for all parties involved in an acquisition scenario. In the long term those merging companies will benefit with improvements to workflows, stronger internal controls, better integration with other apps, and more concise reporting.
I highly recommend that you not go on the consolidation/automation journey alone. Hire a professional to help. That could be me, Kranz Consulting, or any other qualified consultant. Trust me you will save a ton of time and effort in the long run.
If you’d like to talk more, please reach out to me on LinkedIn or at kimberly@finopsadvisory.com. I’d be happy to help.
All my best,
Kim