Taking a Strategic Move to Post-merger Integration (PMI): Financial Integration

Editor's Note: Take a look at our featured best practice, Post Merger Integration (PMI) Best Practice Framework (28-slide PowerPoint presentation). This document provides a guide and framework for best practice in post merger integration. Post merger integration is the process of combining two separate companies in a way that quickly creates the most value and fulfils the expectations outlined in the acquisition vision. The framework [read more]

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Our framework Post-merger Integration (PMI): Financial integration is every organization’s guide to achieving the financial alignment of both Buyer and Target.

Post-merger Integration is a highly complex process. It requires swift action as well as running the core business activities simultaneously. There is no one-size-fits-all approach to a successful PMI Process. However, careful planning focusing on the strategic objectives of the deal and the identification and capturing of synergies will help maximize deal value.

Another critical factor in PMI is pursuing Financial Integration. Financial Integration is the alignment of the finance functions of the Buyer and Target.

Why Financial Integration?

Immediately from the start of the deal, the new organization gets to be dependent on the Finance function to ensure a successful integration process. Synergies must be captured in order to maximize deal value and provide combined organizations with the flexibility to grow.

When pursuing Financial Integration, there must be an integration of business operations, streamlining of the internal control environment, provision of accurate and consistent financial reporting, ensuring tax compliance jurisdictions if the deal is cross-border, and the founding of interim legal structure and business processes. When setting the right direction for a streamlined finance function, it is important that the organizations must already tackle critical matters while still in the early stages of a deal.

The establishment of clear reporting lines must already be agreed upon and set up. Accountability for financial operations, management reporting, control of expenses, and accounting closing procedures must already be established and clear between the Buyer and the Target. These play a vital role when the organization undertakes a Strategic Planning geared towards the development of a Financial Integration Strategy and Plan.

The Financial Integration Strategy: What We Need to Know

The Financial Integration Strategy can only be defined and crafted only when immediate areas that require action have already been identified. The Strategy must be developed based on 8 key areas of focus.

1. Overall Organization. As the first key area, this focuses on the overall set up of the Financial Integration processes. This starts with establishing the reporting lines from Day One of the PMI process. This also includes the establishment of a transition plan that is aligned with the process and systems migration plan.

2.  Internal Controls Environment. Once the overall organization has been set up, it is important that the internal controls environment is established. This will entail setting up the control procedure from Day One. It is of importance that the controls environment is established since this will mitigate risks and ensure regulatory compliance.

3. Cash/Treasury. This is the third key area that looks into the cash position of the organization. It is at this point wherein the organization must be able to plan out its cash flow requirements and be able to gain assurance over adequate funding. This key area is very critical when it comes to the financial sustainability of the organization as it ensures that treasury policies are aligned, cash controls are established, cash forecasting and cash management have commenced, and there is an alignment of investments, foreign currency, and any hedging arrangements.

Aside from the 3 focus areas, the development of the PMI Financial Integration Strategic Plan must also give serious consideration on Financial Statements, Procurement, Financial Planning, Cash Controls, and Tax. These 5 focus areas are essentially important as it ensures that Financial Integration essentials are met.

When this is achieved and the 8 key areas of focus are integrated into the Financial Integration Plan, the new organization gets to prepare itself towards a larger scale Business Transformation in the future.

Interested in gaining more understanding of the Financial Integration component of PMI? You can learn more and download an editable PowerPoint about Post-merger (PMI): Financial Integration here on the Flevy documents marketplace.

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M&A is an extremely common strategy for growth. M&A transactions always look great on paper. This is why the buyer typically pays a 10-35% premium over the of the target company's market value.

However, when it comes time for the Post-merger Integration (PMI), are we really able to capture the expected value? Studies show only 20% of organizations capture projected revenue synergies and only 40% capture cost synergies. Not to mention, the PMI process is typically very painful, drawn out, and politically charged, often resulting in the loss of key personnel.

Learn about our Post-merger Integration (PMI) Best Practice Frameworks here.