Bolt-on and tuck-in acquisitions continue to be a key driver of mergers and acquisition (M&A) activity within the Life Sciences sector. Leveraging the innovation and pipeline of smaller development-based organisations, with the global reach and operations of the larger players is often seen as a sure way of realising the strategic ambitions of a global multinational.
These deals however, are not automatically successful. Despite the name, bolt-on acquisitions often require significant integration effort, ensuring the environment of the acquirer is well positioned to optimise the target business, and realise any benefits and upside identified in the early stages of the deal.
This can be of particular importance within the finance function.
Whilst the finance function is rarely the driver of the deal, it plays a critical role from the outset to support making the acquisition and post-merger integration (PMI) a success.
From our perspective we see the below as, must-do activities for finance during a bolt-on;
- Ensuring accurate, timely and effective reporting on the new combined business;
- Implementing a robust, fit-for-purpose control environment
- Embedding a dual layer project management office (PMO), with strong links between the overarching deal PMO and the finance integration PMO
Getting these elements right is vital to ensuring a successful deal program, reducing risks to ‘business as usual’ activities, and minimising value erosion through ineffective PMI.
Reporting on the new business
Due to the nature of the target business, often being small, dynamic businesses, the legacy reporting process and the underlying data and systems landscape is often very different to that of a large multinational organisation. The strategic assessment of whether to fully integrate systems and the associated impact on operational processes, can further complicate the reporting approach.
It’s therefore key to get an early understanding of the target business, data availability and reporting process.
Case Study 1
It was identified during joint functional workshops that there were substantial differences in the level of data granularity within the target which led to significant concerns that an integrated monthly close process would be at risk of material errors within the target financials and potentially result in delays to the acquirer’s overall group reporting.
It was key to identify this issue early, allowing sufficient time to plan for an interim reporting process that could be implemented in Day 1, allowing time for the newly combined finance teams to work together post-close to understand the different processes and allow gradual shift of the underlying target process into the acquirer’s best practice.
Minimise risks and exposure
The role of finance in managing risk will often encompass both finance acting as a leader within the deal PMO to minimising deal risk, and the ongoing responsibility of finance to minimise operational risk through the organisation’s governance and control framework.
This additional rigour will often be new for the target, resulting in the challenging balancing act of trying to ensure controls are fit for purpose for the target, but also aligned to the embedded control environment of a listed business in order to minimise the risks.
Case Study 2
The initial integration vision was to maintain the target as an independent business, with limited oversight from the buyer. Involvement of the buyer’s finance team was kept to a minimum, with limited finance integration activity expected. There was limited capacity to review the target controls environment, ultimately allowing the target to continue with business as usual controls. Shortly after the initial phase of the integration program was deemed ‘complete’, there was a controls failure in the target business resulting in reporting inconsistencies and the need to reopen the integration program and conduct a second phase of integration activity at significant cost and effort.
The importance of a finance PMO
Finance integration activity can involve significant effort, both in terms of complexity and volume of work required. Additionally, this activity is often highly dependant on the deal team, other functional teams, local (and/or) group finance teams and the target business (for example, the purchase to pay process often requires finance to work hand in hand with supply chain to ensure inventory and pricing considerations are performed in parallel). Getting the finance governance right, with clear roles, responsibilities and communication channels with the wider deal program can make or break the success of a transaction.
Case Study 3
During the initial stages of a program it was determined that the workload for the finance organisation was going to be a key driver for the success of the integration. A finance mobilisation session was organised to define ‘what does this integration program mean for finance’, resulting in a clear finance charter document, including governance model, stakeholder map and communication schedule for the finance organisation. This was proactively discussed and validated with the other deal teams and became an alignment document for wider functional, and local stakeholder teams. This resulted in other deal stakeholders leveraging the charter solution for their own activities. Ultimately leading to a more complete understanding of the required integration activity and helping to position finance as a lead function within the wider deal governance program.
Whilst finance is not the driver for bolt-on activity within the Life Science industry, it’s critical the finance function is involved early in the deal process to make it a success. The focus for all functions, should be on truly understanding the target business, rather than assuming the acquirer’s process will be the best fit for all. This means that finance need to be clear on their role in understanding, assessing and implementing effective reporting solutions, and a robust governance process in order to ensure the integration is set-up for short, medium and long term success.