Deloitte have published a high-level report, on what North America's top finance executives are thinking. This post takes a look at how CFOs can potentially overcome some of the growing challenges associated with new M&A activity during a sluggish economy.
The report finds that the top priorities for North American CFOs are:
1. Revenue growth/preservation in new markets
2. Framing and/or adapting strategy
3. Prioritizing investments
4. Talent (availability, development, morale and cost)
5. Revenue growth/preservation in existing markets
Falling just outside of the top 5 is M&A activity - which is now a challenge for 25% of CFOs.
Many large businesses, during 2010/11, saw opportunities arise throughout their respective markets (mainly Retail/Wholesale, Manufacturing and Healthcare/Pharma) as suppliers, partners, competitors and complimentary organisations began to crumble under the pressure of the recession.
These (now) reasonably-priced, valued businesses are being gobbled up by the major corporates who are looking to either add alongside their existing operations, integrate into their core business or remove from the market. Those who choose to assimilate a new acquisition also absorb the outstanding debt, potentially different cultures, various talent pools and an array of operational efficiencies that could lead the acquirer to this juncture.
Many of the large corporates who snatch-up a bargain mid-recession (take Kellogg Company for example) are themselves faced with a sluggish economy and are frantically looking to generate cash in new and existing markets.
A potential solution for overcoming this cash flow issue could, in fact, lie in cash preservation (rather than revenue generation). A natural result of M&A activity is a fracture or dispersion of spend patterns increasing the likelihood of maverick spend behaviour. Large organisations can realise significant cash benefits (which can be reinvested into capital or used to service debt) by centralising key buckets of dispersed non-core spend areas (such as professional services, facilities management, travel), driving out cost efficiencies and synergies across the business.
Releasing cash through this method, if done correctly, not only can deliver a fast ROI but also significantly increases control and ensures greater spend /regulatory compliance across dispersed business units.
This approach requires both Finance and Procurement to work in unison. However, our recent research has found that over 60% of CFOs (involved in the study) expressed dissatisfaction with their internal procurement teams business engagement and change management capabilities - meaning that the CFO is looking elsewhere for solutions to his/her M&A challenges.
Has anyone successfully developed a centralised cost approach which includes new mergers or acquisitions?
If yes, what results are you seeing - particularly in respects to bottom line impact?