Canadian Underwriter

Directors, CFOs could have more alignment on M&A risk issues: Deloitte

August 16, 2013   by Canadian Underwriter

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While company chief financial officers and directors are mostly aligned on merger and acquisition targets, a gap remains for how both groups view the risks involved with M&A, according to a recently-released report from Deloitte.

 Directors, CFOs could have more alignment on M&A risk issues: DeloitteMost corporate directors and CFOs (48% and 43%) agreed that their companies’ M&A strategies are to seek out smaller, strategic deals, according to the survey of people in those roles at public companies with revenues of $500 million or more.

“The risks associated with smaller acquisitions are typically lower and easier to control, while the strategic benefits may be easier to credibly analyze and articulate,” the report notes.

However, CFOs were more likely to cite “differentiating or diversifying products or services” as their primary purpose for M&A deals (at 64%), while directors were more likely to say “the pursuit of cost synergies or scale efficiencies” (at 56%).

While more than half in both groups expect to deploy cash as the primary way of funding M&A deals, CFOS were more likely to see debt as the main source of funding (at 37%, versus only 25% of directors), Deloitte suggests.

CFOs and directors also agree that the greatest cause for concern in terms of the success of such transactions was integration failure at 43% and 37% respectively. In terms of integration itself, cultural fit was named by both as the primary risk (47% of directors and 51% of CFOs), according to the report.

Directors also cited economic uncertainty as a concern of achieving a successful M&A transaction, while CFOs named the regulatory and legislative environment as another top concern.

Overall, while directors and CFOs are aligned on several M&A aspects, Deloitte suggests that they could work to close the gap in their views, particularly when it comes to the main purpose behind such deals.

“One way to increase communication and effectiveness in this arena could be for the board and the CFO and finance team to make M&A objectives, strategies, and risks explicit, both in general and for each transaction,” the report suggests.

“…Regular discussion between the board and the CFO around inorganic growth strategies and ways to implement them to achieve strategic goals could help bridge this gap.