Office of the CFO Blog

Welcome to a Guest Blogger on Office of the CFO: Paul Burmeister. Paul is a partner in Tatum's New England practice, a seasoned CFO/COO with M&A experience in technology, manufacturing, and business process outsourcing firms.

So, you've sold your company, the deal's been struck, and due diligence is under way. You know the buyers are putting together their integration plan. Is integration something that the buyers will do to you (and your company), or should you be an active participant?

Integration is the key to success or failure of an acquisition. So if you, as the seller, think you have something at stake post-acquisition, you'd better jump in now. Why?

Integration is a process with three participants, not two.

1. Buyers want speed - they have a lot at stake in getting the integration process complete so that they can begin to enjoy the expected benefits of the acquisition.

2. You as the seller want speed, too - after all, you won't collect your check until due diligence complete. Bur there's more at stake than just the initial payment. You may have agreed to an earn-out or other ongoing compensation, and the likelihood of hitting the targets that will trigger those payments goes way down if integration fails. Moreover, the future roles of you and your employees can be dramatically impacted by the integration plan.

3. The third set of participants are the other stakeholders: your employees, your customers, your suppliers, your community. If they are important to the merged companies' future, or you simply want to be able to face them again, you'd better make sure you know what the buyer's plans are, and that the integration is successful.

So what should you strive for? Simple: you need a seat at the table from Day One. You need to help put together the team - in fact, you need to have an integration team that mirrors the buyer's integration team. Insist on it - and if the buyer balks, maybe you'd better think long and hard about why they don't want you involved in the process.

Welcome to a Guest Blogger on Office of the CFO: Paul Burmeister. Paul is a partner in Tatum's New England practice, a seasoned CFO/COO with M&A experience in technology, manufacturing, and business process outsourcing firms.

I'll be blogging on mergers and acquisitions, focusing primarily on the task of integration. I've been involved in M&A for more than 25 years, and I've had primary responsibility for integrating acquisitions as small as pre-revenue "tuck-under" start-ups and as large as billion-dollar publicly traded companies. No two integrations are ever exactly the same, of course, but one thing is certain: buyers and sellers both had best beware of surprises.

• You never know exactly what you're buying: Due diligence is critical for the buyer, of course, and the intent of due diligence is to make sure you know as much as possible about your target. But there will be surprises, and you'd better be ready to react. I learned this the hard way on my first two acquisitions. At the closing of the first one, the CFO refused to sign a key certification unless he was given more compensation from the founder and primary shareholder. He was terminated on the spot, by mutual agreement of buyer and seller. A few weeks later, we closed a second acquisition. The co-founder/CEO was particularly lovey-dovey with his wife at the closing dinner. The next morning, he had her served with divorce papers and disappeared with his girlfriend on a sailboat. In each case, we lost a key leader and all the historical knowledge and context he carried in his head. Fortunately, not all post-acquisition surprises are that dramatic, but there will be surprises. In your integration planning, you need to identify the most critical assumptions you've made - and develop contingency plans in case your assumptions are wrong.
  
  
• You never know exactly who's buying you: Sellers need to do due diligence, as well. What's your expectation of what life will be like after you sell your company? How well does that vision match up to what the buyer is telling you? If all you want as a seller is a wire transfer and a calendar full of tee times, maybe you don't have to worry...but if you expect to have a role post-closing, you should insist that you and your management team play an active role in integration. One seller I knew found the pre-closing diligence and integration planning so unsettling that he walked away from a sale that had been in the works for three years.

Surprises are the common denominator - they're the norm, not the exception. Whether you're the buyer or the seller, identify your most critical assumptions, think about what could go wrong, and build contingency plans.

Welcome to a Guest Blogger on Office of the CFO: Rich Brooks. Rich is a Partner in Tatum's Northern California practice, a Certified Turnaround Professional and was recently featured in Comstock's Magazine offering advice about managing financial difficulty.

I find it interesting that so many are claiming the recession is over. I'm not sure, but based upon conversations with clients and referral sources (lender workout groups) the economy still has a lot to flush out. This is of particular concern to CFOs, because with limited capital, depressed valuations, slow sales, etc, more and more companies are tripping covenants causing loan defaults.

This in turn means having the uncomfortable meeting with their lenders. Lender workout groups are adding staff to deal with the flood of loan defaults. By the time your credit hits the lender workout group your lender is probably "fatigued," meaning they want you to take your business elsewhere. And given my earlier comment regarding limited capital, you may not have many options. The lender becomes fatigued because the company misses deadlines, presents optimistic forecasts, continually misses these optimistic forecasts - in short, the lender doesn't have confidence in the company's management.

What's a CFO to do? Be proactive. At the first sign of trouble hire turnaround/restructuring advisors to help you through what can be a difficult and turbulent situation. This action serves many benefits. First and foremost, the lender is generally happy to see a distressed company hiring professional help, especially if the company is open to their advice. Also, the bank sees the advisors as objective and knowledgeable of their process and position, which makes for smoother communication.

But more importantly, the advisors are experienced dealing with complex situations and therefore can help the company find a solution to their dilemma. Experienced advisors create a buffer or breathing room for the client by working with the lender to set reasonable timeframes and expectations. You want the lender workout group to see your company as being proactive and cooperative. Don't wait for the "Hail Mary Pass." The lender may call your loan and put you into liquidation - which is highly possible given the limited credit on the market. This horrifying reality has happened to many this year.

Is the recession over? The economy may be picking up, but CFOs are still facing serious situations and will be for months to come.

I do - but I'm a democrat!

For 20 months now, we CFOs have weathered intense pressure to push past the daily cascade of negative economic news and help our companies survive this recession, although I feel this one has not lasted as long as any of us anticipated. Few of our financial decisions have been easy. . . or fun (are they ever?).

Recently, President Obama stated that we are experiencing the beginning of the end of the recession. Other critics argue that the recession can't possibly be over with unemployment rates so high.

Contrary to popular belief, I believe employment rates are exactly where we should expect them to be.

Tatum's monthly Survey of Business Conditions - which looks at the past 30 days and forward to the next 60 days of current business and economic trends - clearly indicates that employment is a lagging indicator of the health of an economy. Unemployment didn't rise significantly until several quarters after the recession officially began in December 2007, so we shouldn't expect to see employment rates returning to normal for several more months.

The Tatum Survey, which predicted a recession several quarters before it became official, also confirms that the economy is slowly but steadily heading toward a recovery, despite a month of stagnation back in July.

More important for us (and it really is all about us, isn't it?), how can we as CFOs lead our companies and communities toward gaining strength and preparing for the future? Sure, many of us have created cash flow forecasts, restructured staff, attacked costs and renegotiated with vendors, but those are survival techniques.

My colleagues and I have shifted our focus to growth and we're seeking ways to raise capital and prepare for future M&A activity while valuations remain low. Planning for 2010 starts now or we'll be behind the curve.

What are your ideas on finishing 2009 strong and preparing for 2010? Can we help "lead" out of this recession?

Labels: Capital Restructuring, Cash Forecasting, CFO Mentoring, CFO Roadmap, Equity Investment, Financial Consulting, Financial Projections, Merger and Acquisition Services, Raising Capital

I am excited to launch this blog because over the years, I've become increasingly convinced that CFOs need more of a voice. Our role has become tougher and tougher over the past several years. In fact, Forbes magazine a few years back called the CFO role "a thankless role with the diciest risk/reward ratio of any job short of Navy Seal."

In the last few months, we've seen Wall Street in turmoil, the housing market has tanked and we've elected a new president who is expected to solve all these problems in his first 100 days. In the news, I've read countless opinions from small business owners, CEOs, directors, economic analysts and other pundits who are trying to make crystal ball predictions in a completely unpredictable market. And of course this happens as we are trying to plan for 2009!

This blog is meant to be our forum - a blog written by CFOs, for CFOs. Business leaders who want to read about or comment on the CFO point-of-view can come here for a read on what is going on. The Office of the CFO is rapidly emerging as the most important function in any business today.

I will be the host of the Office of the CFO blog, but I plan to invite my fellow CFOs to contribute so the blog really represents what finance leaders are facing in today's environment. You will be privy to thoughts and perspectives from other CFOs from companies in any industry, of all sizes.

Your comments are always welcome, and I look forward to reading the many different perceptions from my fellow CFOs. Let us know what you think is next for the office of the CFO.

About the blogger
Cindie Jamison is a 25-year finance veteran who has served as CFO of several companies including public and private companies from early stage to Fortune 100. She is Tatum's National Director of CFO Services and she currently chairs the Audit Committees of two publicly traded companies.