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Steps CFO Should Take to Prepare for M&A

Steps CFO Should Take to Prepare for M&A

While the market is still fluctuating quite a bit, ensuring that one's company is prepared for potential mergers and acquisitions is an essential part of every CFOs job at all times.

Initial public offerings, many of which have been tabled over the past few months due to the slowdown of the economic recovery, enable companies to test the market, but often the result is the acquisition by another company.

As such, financial bosses and other executives need to make sure that they are prepared for all possible scenarios in terms of M&A strategy, in order to have the best outcome possible that leaves their business headed in the right direction.

According to The Financial Investment, the more time a company waits to prepare for M&A, the more costly such preparations ultimately become. The publication suggests that CEOs and CFOs begin to map out their company's exit strategy up to two years before it even takes place.

The CFO plays a critical role in this process, as the financial chief can help guide the transaction, transitioning the company from cash financials to GAAP based, according to the publication. When company's gear up to act on their M&A strategy, accounting figures and other simple financials need to be completely taken care of, as this is the first step in the larger process.

Next, according to The Financial Investment, it is important to build economic models and operational dashboards, which will allow the CFO and CEO to make their decisions based on the financial facts of the company, rather than simple judgment calls.

Once the company feels that its financial reporting and economic models have been completed, hiring an accounting firm to complete a financial audit can be a crucial next step.

"There’s noth­ing like an audit to ensure your company’s com­pli­ance with basic finan­cial account­ing," the publication notes. "Make sure to dive deep in to the audit firm’s assess­ment of your finan­cial oper­a­tions and processes to deter­mine areas you can improve on."

Another important aspect in a company's M&A strategy is to build relationships with executives at other companies as well as investors who will play an important role when one's company is either acquired or makes an acquisition of its own.

This strategy is currently being employed by solar firm STR Holdings, which is looking to purchase either a competitor or a manufacturer of the raw materials it uses in order to cut costs, Reuters reported previously.

Barry Morris, the CFO of STR, told the news source that the firm recently sold its product quality assurance business for $275 million in cash, a representation of the fact that firms can look to make acquisitions while still selling portions of their business at the same time.

According to CFO.com, the fluctuating markets have not seemed to put much of a damper on large acquisitions, as Google agreed to acquire Motorola Mobility for $12.5 billion, increasing Google's portfolio by 17,000 patents.

On the heels of Google's major acquisition, Time Warner Cable bought out broadband internet and cable service provider Insight Communications for $3 billion, the publication noted.

With such deals come big risks, however, making it even more critical that CFOs complete the necessary preparations to keep their business's M&A strategy viable. As CFO.com notes, recent research compiled by PricewaterhouseCoopers demonstrated that companies with lengthy histories of M&A may not benefit as much from making new acquisitions than infrequent acquirers. Still, "serial acquirers" can make their strategy successful by capitalizing on their experience and venturing overseas for new opportunities, the publication reported.  

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