Acquisitions - be astute, not a statistic

How the integration of the finance system is a key factor in the success of any acquisition strategy

Contents Summary

Section 1

Optimising the benefi ts of an acquisition

Section 2

Merging fi nances

Section 3

Gain control early

Section 4

Maximise customer loyalty during a transition

Section 5

Amalgamate to accumulate

What is bluQube?

In order to post more upbeat results, many AIM companies have identified M&A activity as representing great potential in the current climate. This article helps you to ensure an astute acquisition becomes a success rather than a statistic. The following acquisition related issues are covered:

• Inaccuracies during the due diligence phase
• Overcoming disparate accounting systems
• Gaining quick control of a single accounting operation
• Maximising acquired customer loyalty
• Leveraging the synergy and revenue opportunities

Whilst conservative companies may batten down their hatches and hope to ride out the economic storm that rages around them, braver, well run cash-rich AIM listed companies that already manage a tight ship can grasp the downturn as an opportunity to increase their stock price.

Not only can you combat the potential loss of business as demand shrinks, but you can also grow exponentially into new markets. How? By investing in businesses whose management shortfalls are exposed by a downturn in their trading conditions. Nothing unmasks bad business practice more than a lack of liquidity. As the credit crunch deepens businesses have not been able to patch up their mistakes simply by throwing money at them.

As the banks put the squeeze on their overdrafts they have simply run out of cash. Ironically though, just because a company is poorly managed does not necessarily mean it produces inferior products or services. In fact many have excellent offerings that sell into lucrative, profitable markets. At present, there is great value in the corporate market place and for the shrewd Mergers & Acquisitions (M&A) professional, it isn't just the high street that can offer some attractive bargains.

1 Optimising the benefits of an acquisition

Historical trends show that over the last twenty years the failure rate for M&As is around two thirds, so although they represent great potential you also need to ensure you don't become a statistic. To add value to your overall business, an acquisition needs to be carefully managed pre and post the takeover.

One of the reasons behind disappointing performance is the failure to evaluate, integrate and manage the core financial systems and the information they contain. For example, many accounting systems are proprietary and therefore operate completely independently. The result is that each system from the two respective companies has to be run separately and the information from these systems then needs to be ‘pasted' together manually. The resulting data is often inaccurate and the disparate accounting systems are inflexible to change and therefore totally inefficient. It's not therefore surprising that decisions based on this information often lead to higher costs, lower profitability, and ultimately a doomed acquisition.

2. Merging finances

Financial systems now exist which have been designed to overcome these issues and enable growing companies to input financial information from external proprietary sources to create a consolidated accounting system. For instance, systems based on ‘open' technology can accommodate the entire acquisition process, both in the pre and post stages of the merger.

During the initial due diligence phase for example, perhaps the most critical part of the entire process, it should be possible to input data, even if it is just the balances into your own finance system, allowing you to create a number of ‘what if' models based on real data. This can provide a much higher level of accuracy over costs and the target company's potential for success, rather than information provided by the ‘rose tinted' view of a third-party, typically the sellers of the business.

3. Gain control early

Once the acquisition has been made, it is likely that new purchase was previously underperforming and therefore poses a danger to burn the cash and resources of the acquiring company. It is very important therefore to gain quick control and visibility of the combined costs by integrating the new entity into the existing financial system and create a single accounting operation. This should be a simple process of just setting up a ‘group' or ‘cost centre', and includes merging not only the bought ledger, but also the sales ledger and all the operation and capital costs, including the expense of the merger itself.

4. Maximise customer loyalty during a transition

A faster integration also helps retain the loyalty of customers from the acquired company by delivering new sales and revenue forecasts based on ‘real' data. This enables business managers to analyse the new customer base, decide which accounts are profitable, which need work and which ones, if any, need to be shut down.

Once both the costs and the revenue data are clearly understood, finance managers then have the information they need to consolidate the operation and really make the new merger work. This also sends a message to everyone that now the deal has been done it's ‘business as usual'.

Directors should not be put off by overseas acquisitions either. If they deploy the correct financial system it should be able to handle currency conversion and offer web-based remote access and management regardless of the location of the company or the finance professional.

Many browser-based accounting systems such as bluQube (www.bluQube.co.uk) allow you to simply send new users a URL and they can start with a new finance system immediately.

5. Amalgamate to accumulate

In the past, finance managers have spent more time trying to integrate incompatible accounting systems than amalgamating the new business. This has been a recipe for disaster, as management effort and resources are then focused on internal processes rather than leveraging the synergy and revenue opportunity a new acquisition brings. There is now a new generation of finance software that provides M&A professionals with the tools they need to adopt a slick, yet successful acquisitions strategy that can expand their business, regardless of the prevailing economic circumstances.