To learn more about York IE’s Post-M&A services, click here.
A finance post-merger integration checklist is an essential document as you seek to maintain business continuity after an M&A transaction.
Throughout my 15+ years in the corporate world, I’ve managed a variety of mergers and acquisitions (M&A) from a general and administrative (G&A) perspective. Integrating multiple business entities after an acquisition is often a complex and time-consuming process.
It’s estimated that 70-90% of acquisitions fail, mostly owing to problems integrating the entities involved. With the global M&A market eying a rebound, it’s likely that many more growing tech companies will undergo an integration process.
Drawing on my experience as a CFO, I’ve outlined seven key steps to guide your post-merger integration efforts. Financial and G&A leaders will be tasked with a lot in this process: setting up your financial reporting structure, updating forecasts, maintaining cash flow, working through purchase accounting entries, and ensuring compliance in new regions.
This finance post-merger integration checklist will help keep you on track and reduce friction as you navigate a world of change.
Finance Post-Merger Integration Checklist
Mergers and acquisitions can be complicated from a financial perspective. Here are seven steps to making the process smoother:
- Establish your financial reporting structure.
- Complete purchase accounting entries and map out an accounting transition plan.
- Ensure you’re covered on risk and compliance changes.
- Review previous agreements, disclosures, and debts.
- Gain visibility and control over cash flow.
- Communicate relevant changes to stakeholders.
- Update your forecasts, analysis, and reports.
1. Establish your financial reporting structure
Throughout the integration process, finance and G&A leaders need to effectively communicate their financial reporting structure to the board and other stakeholders.
Decide how “blended” you want your forecasts to be. Does the board want to see financial reports that combine results from all entities? Or do they want them viewed separately? Oftentimes, the answer is both. Stakeholders usually like to examine multiple metrics to determine the effectiveness of the merger.
2. Complete purchase accounting entries and map out an accounting transition plan
Record any purchase accounting entries as soon as purchase price allocation and any external accounting or tax transaction work is complete. Review purchase accounting entries and third-party valuation work to understand any adjustments. For example, you may have adjustments to asset values or a write-down of acquired deferred revenue balances.
Map out an accounting transition plan to formalize new finance operation processes. Consider people, processes, and technology. This will make sure the work is done efficiently, accurately, and with clarity.
3. Ensure you’re covered on risk and compliance changes
Be sure your business is covered on basic risk and compliance matters, including adherence to tax requirements. Perhaps your company wasn’t initially subject to sales tax, but the newly acquired company was – which now makes the larger entity taxable as well. Do some digging to see if anything in your own business management must change to keep up with taxes and compliance requirements.
Compliance review is especially important for companies in regulated industries. If the acquired company was required to be SOC 2 compliant, you may need to update your compliance status for the larger entity. Ensure that the acquiring entity is legally allowed to conduct business in the locations that the new company operates in.
4. Review previous agreements, disclosures, and debts
The acquiring party must take the time to understand what liabilities they’re assuming by acquiring the new entity. Are there significant contracts for rent, leases, software licenses, etc? Did the acquired company take out a loan – and will they break a covenant if they don’t maintain a certain asset-to-liability ratio? It’s often helpful to assign a person responsible for maintaining debt payments and reporting requirements.
5. Gain visibility and control over cash flow
It’s now time to facilitate any operational changes necessary to maintain business operations.
Where is your money stored and who has access to it? These are two vital questions to answer during your integration process.
Review access to bank accounts; add and remove authorized users as needed. Do the same with company credit cards. Apply bank controls (wire limits, check stock storage, etc) to new accounts, and make sure to change bank details with customers and/or vendors for those new accounts.
Review historical cash transactions for the new entity. This will help you identify all the stakeholders that need to be informed, any auto payments that need to be redirected, and understand a cadence of cash flow that will help to establish your initial consolidated forecasts.
6. Communicate relevant changes to stakeholders
Finance leaders should always notify customers, vendors, and banks of any changes to their billing before they occur.
Inform clients of the high-level details that pertain to them: the news of the acquisition, if the entity or brand name is changing, any changes to invoicing or bank info, etc. Review payment terms and collection trends of new customers. Make a game plan to address these if any concerns arise.
7. Update forecasts, analysis, and reports
There’s a good chance you’ve updated your forecasts during the due diligence process of the acquisition or merger. Once you’ve completed your major financial to-do’s, it’s important to update the forecasts, analysis, and reports to enable clarity and accountability.
Remember that you won’t be able to run through this checklist in a day – or even a month. Sometimes it takes years to migrate customer contracts and billing. I’ve been part of a merger in which the finance teams barely tweaked their financial structure in the first three months while the leadership team planned and strategized. Be patient, and focus on maintaining revenue.
With any luck, our finance post-merger integration checklist will help keep you organized as you push forward with your integration efforts. Be sure to download our Post-M&A Integration bundle below to share with your leadership team.
