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CFOs were traditionally seen as the corporate scorekeepers who managed the books and reported historical data. With the advent of artificial intelligence (AI) and other new technologies, this view has changed over recent years. Today, with the amount of granular data at a CFO's fingertips and increasingly sophisticated, cost-efficient ways of analyzing it, CFOs are playing an increasingly strategic role in their organizations.
In the context of a corporate merger or acquisition, success is most likely if the CFO takes on a forward-looking role with an eye to external audiences. By acting as a deal architect, the CFO can use financial data to build a compelling case for the companies' joint future while working hand in hand with the rest of the executive leadership team, as well as the team of bankers who help guide the sale.
CFOs need to take several intentional steps to successfully move from being a good partner who provides accurate data to being a great partner who weaves accurate data into a cohesive narrative that is central to defining and supporting the company's valuation.
Step 1: Aligning with the CEO
One of the most common mistakes in the process of selling a business is an information disconnect between the CEO and the finance team. In other words, if a CFO starts dumping financial data that does not align with the broader sales pitch, that action will create friction that can slow down the entire acquisition. The reverse also applies, however: If financial data doesn't support the CEO's narrative, the CFO needs to address the situation, providing other executives, the board, and partner banks with timely and accurate data to support all their claims.
Presenting a united front is essential, and the CFO must ensure that every key performance indicator (KPI) and financial report supports the specific narrative management is selling to the buyer. Having a financial story and a sales story that are in sync builds buyer confidence and validates the valuation. Consistency is also a driver of credibility during these high-stakes negotiations, and any mistakes in the data provided to a potential buyer can really set the sale process back.
With the responsibility to ensure message discipline among the company's leadership and to maintain consistency in the data that supports those messages, the CFO is central to any sale process. We were recently involved in a transaction that provides a good example of this—the sale of an IT-oriented value-added reseller (VAR). VARs generally do not have recurring contract revenue, so their forecasts are often questioned during the acquisition process. In this case, the company's pipeline data was consistent and accurate, with a forecasting process that had historically proved accurate. Because the CFO was able to provide data demonstrating the solidity of the seller's pipeline, the buyer's management team moved forward with confidence in the forecast as they factored sales projections into their valuation of the VAR.
Step 2: Get Smart on Sector-Specific Storytelling
Contextualizing metrics is vital to ensuring that a company leaves no money on the table during a merger or acquisition, and skilled storytellers know that the meaning behind the numbers varies by industry sub-sector.
For example, in the software-as-a-service (SaaS) space, the CFO should focus on the math of the future. This involves highlighting insights such as net retention rate, expansion metrics, and the nuances of GAAP versus annual recurring revenue (ARR) compliance. Conversely, for VARs or managed service providers, the narrative should shift toward the quality of the backlog. In these sectors, the CFO must demonstrate predictability and recurring revenue streams that might not be immediately obvious to an outside investor.
Step 3: Proactive Defense and Anticipating the "Attack"
Great financial partners to corporate negotiators do not wait for due diligence questions to arrive; instead, they identify potential points of attack in advance. A good example was one of our clients, which operated with negative working capital, meaning their balance sheet had more current liabilities than current assets. The CFO anticipated receiving diligence questions around this highly unusual circumstance and prepared five years' worth of historical trend analysis demonstrating that, in the company's business, negative working capital was an inherent factor that would continue into the future.
By using data to explain why the business works the way it does, the CFO can push back against buyers with objective facts rather than emotion. This proactive approach includes the strategic sequencing of the information in the data room. Organizing the data in a logical format that mirrors the due diligence request list enables the buyer to review the information quickly and accurately, reducing the time needed to understand it. By managing how and when information is released, the CFO can tell a logical and persuasive story that addresses concerns before they become deal-breakers.
Step 4: Maintaining the Balancing Act
While working on a merger or acquisition, the entire management team must undertake a difficult balancing act. Despite the flood of new activities they are engaging in, the leadership team needs to stay focused on running the day-to-day business. A common deal killer is a dip in performance during the sale process, which can sometimes lead to a withdrawal of the offer.
During one of our recent engagements, the client experienced a data breach, prompting the buyer to review its offer. By providing detailed insights into the breach and a forecast of its impact on the business, the CFO helped demonstrate to the buyer that the business had not been materially damaged.
The CFO acts as a force multiplier in any transaction. While the CEO sells the vision, the CFO provides the structural integrity that makes that vision believable to a sophisticated buyer. By moving from scorekeeper to storyteller, CFOs shift from just recording their company's value to actively helping create it.
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