08 November 2017

Beware the Hidden Pitfalls of Mergers and Acquisitions

Many businesses are not paying enough attention to the challenges of bringing differing organisations together when it comes to ensuring transactions and payments are being processed correctly post-deal.

As a result, the impact on the company’s profit margin – and the success of the new integrated operation – can be devastating.

Our research into why mergers and acquisitions struggle reveals that companies looking to deliver cost savings and efficiencies as the result of the deal fail to look forensically enough to ensure that the systems and technologies which are in place are fit for purpose for the new operation.

They also don’t pay enough attention to bringing different business cultures together and often lose experienced staff, leaving a knowledge gap in the new organisation.

More importance should be paid to the role accounts functions play during the due diligence process and in the days following the deal. That includes how they operate and analysing the systems and technologies they use and how effective they are.

Bruno Roperto, who heads PCMG’s Accounts Payable audit service, says his team is increasingly being brought in to help businesses that are struggling post-merger or after an acquisition.

And one of the main reasons, he points out, is a failure to integrate people, systems and processes properly, with the pace of change can adding to the problems and disruption.

Bruno said: “There is a need to step back and take a look at the processes and systems that the newly-acquired or merged business uses before making decisions that can cause great harm.

“It means closely looking at both the technology and the personnel to ensure that knowledge and good practice isn’t being pushed out of the door needlessly.

“It is also about having a proper handle on supplier transactions and payments to ensure that post-deal they are being processed correctly and accurately.

“Unfortunately, what we have found in too many instances is that departments are merged or closed down with the focus on internal cost reduction and savings, without any analysis of what the decisions being made will mean on supplier transactions and payments.

“That drive to meet the targets demanded by investors can have a really significant impact on the finances of the new organisation further down the line, putting the management under even more pressure.

“Whilst focusing on the overall business plan, there is also the need to ensure controls are working so that the organisation is not haemorrhaging cash through incorrectly processed transactions and payments. There is a need to ensure that finance systems work effectively.”

There has been instances of retailers still paying for utilities for outlets that had closed as a result of companies merging or being bought.

Failure to carry out a ‘supplier cleanse’ operation had also led to payments continuing for many months for services businesses were no longer receiving or needed.

Bruno added: “There is also a tendency for the larger party in the deal to take the view that its processes and technology are superior. That is not always the case and big is not always best.”

PCMG, analyses in excess of £97 billion of auditable spend per annum across more than 24 million transactions. Its client base includes FTSE 100 companies and major public sector bodies.

The company is a world-class operating cost and overpayment recovering specialist. It can maximise your organisation’s liquidity by applying highly specialist expertise to reduce operating costs and improve overall performance in the areas of energy, telecoms, water and accounts payable.

Part of Ayming (www.ayming.com), Europe’s leading business performance consultancy, with over £1bn recovered for clients across the group in 2016. Operating in 16 global markets with over 30 years’ experience delivering audits in more than 30 countries.

Visit our website at www.pcmg.co.uk or email us on [email protected]