WITH M&A activity back in vogue, eg, Betfair and Paddy Power, some CFOs will be faced with the risk of a ‘you’re fired’ moment. After many a deal, the CFO is offered a package by the acquirer or the sponsor. Some will be replaced by the CFO of the acquirer, others will be removed by sponsors who always change the CFO. In some cases, both CFOs have to work together for a while, possibly with no clarity of the outcome of the competition to land the top job. Some may have to remain during the integration period, with limited authority and some embarrassment.
In the case of CFOs competing for the top job in a merger, many believe that success depends mostly on ability and merit, but it is more likely to depend on a complex mix of trade-offs between culture, friends, fit, politics and power. The opposing boards and CEOs may also be uncertain of their own future roles, and are therefore unable to influence the outcome, but the one certainty is that no one is telling the whole truth.
The adage that most acquisitions fail to deliver the expected outcomes may be true, but I believe that most of the success is already predetermined by the time the deal is done, and it usually falls to the CFO to do the explaining, an onerous duty.
The CFO role in M&A is a crucial and multi-faceted one, and it is usual for the CFO to run the process, which will include leading the negotiations. This can be confrontational and stressful, and the CFO must decide which side to be on from the outset, which carries obvious but unpredictable risks. Not only are relationships at risk, but the M&A process leaves little time for the day job, and the business may suffer as a result, leading to possible collateral damage.
Post-acquisition planning has been topical since God was a boy (just read Barbarians at the Gate) but, despite the fact that much of the acquired value of any business is likely to be its people, many acquirers are still guilty of downplaying the softer people issues in favour of cold financial and strategic aspects. The situation faced when having to choose between two equally successful CFOs at the peak of their careers is rarely addressed until too late. Indeed, it is not only key staff who develop uncertainties, and are tempted to leave, or to refuse to commit until they have taken stock, but also the CFO – especially the one who does not get the top job but is expected to continue during the integration phase.
I was once the CFO of a business that acquired a US company where the CFO was resigned on the job, having been publicly embarrassed about his business’s financial condition, and the CEO was sitting on such a generous change-of-control contract that he could hardly wait to escape to the golf course. I fired them both in the US office while my chairman was bravely on the other end of the phone to us from London.
The controller left voluntarily on the same day and, although we found ourselves successfully in charge, we were left without any meaningful continuity (ie, a fail). To our detriment, this was a lesson in how important the sitting CFO and finance team were to the ongoing success of the acquisition.
In my experience CFOs caught in these M&A situations must maintain an emotional distance, and should separate the business and financial decisions from the people issues. It is wise to tackle tough people issues early because these decisions tend to become more difficult over time.
For the CFO destined to lose out in the run for the top job, it is wise to ensure that the monetary incentives are in place, robust and openly declared. To negotiate a stay bonus in addition to the usual share options and contractual protection is commonplace. In today’s social media world, where everything is visible to everyone, it is crucially important to remain professionally focused and to provide exemplary leadership to the finance team, some of whom may be tempted to follow the CFO to the next organisation. ?
Last month, the SFD attended a CFO conference in the US where getting fired holds no stigma, but is a commonplace, open and acceptable step towards the bigger leagues