The M&A market is back — what financial services strategists should know before diving in

After a financially tumultuous 2023, the M&A market has seen a resurgence in 2024 as C-suite leaders feel more emboldened to invest in expansion. In particular, 37% of CFOs agree that M&A will make up a substantial portion of their growth strategies.

While a healthier M&A market is undoubtedly a positive sign, the challenges of executing an M&A deal shouldn’t be ignored. It’s no secret that many mergers and acquisitions fail to deliver on their expected value, but why? Tech stack and financial consolidation is one of the biggest hurdles that CIOs and CFOs must overcome during the M&A process.

How can these executives and other strategists use this new wave of M&A deals to rethink how they approach tech-stack optimization, culture clashes and other challenges that stand in the way of a successful M&A transition?

M&A comes with a lot of moving parts

Centralizing disparate financial data, SaaS applications and IT processes is no simple task, yet it may be one of the most important indicators of post-merger success or failure.

For a CFO, the challenge lies in gauging the financial feasibility of a potential deal. This involves an extensive vetting process that works to identify pricing expectations, potential risks and existing value. Contextualizing the fit of a specific target with broader market conditions and business goals is a big ask, and it doesn’t stop after the decision has been made. Post-acquisition, the CFO must also ensure that both companies’ financial systems and processes are seamlessly integrated.

On the other hand, CIOs are tasked with assessing the compatibility of the companies’ IT systems and infrastructure — and eventually integrating these components in a logical way. This presents a myriad of challenges, as both IT teams have likely grown accustomed to their own processes and systems. Transferring and storing an entire organization’s worth of data also presents significant security risks.

With all of these moving parts, it’s no surprise that up to 90% of mergers and acquisitions fall short in some way. A failed M&A transition can be disastrous, driving a wedge between employees, negatively affecting financial splits and resulting in layoffs or high turnover rates. In essence, it prohibits the type of business growth that many CIOs and CFOs are looking to achieve through M&As.

How to minimize M&A risk

Given that M&As are inherently complex and risky endeavors, how can executives work together to minimize this risk? For one, they must understand that M&A is not simply transactional; it’s an opportunity for both companies to map out all their existing technology and processes ahead of time and make improvements. This approach can help minimize disruptions post-merger and achieve a greater level of business transformation.

CFOs shouldn’t look at their financial infrastructure in isolation, apart from other internal processes — they should aim to have a single pane of glass they can view all their liabilities through.

Imagine being able to view all your credit, collections, receivables and payables liabilities in a single view, across different ERPs and business units. This tool would provide a currently unattainable level of confidence heading into a new merger or acquisition, knowing which policies you need to optimize and which are primed for integration.

Throughout this process, don’t assume that the parent company has superior technology solutions and processes in place. The more accurate perspective is that each company has processes that are an ideal fit for their industry, business objectives and number of employees. Finding the happy medium between the two setups is where leaders on both sides can make progress.

Post merger, it’s vital to establish a game plan for measuring success and adapt policies and technology as needed. Establish KPIs that allow leaders on both sides to track their financial, procurement and logistical performance throughout the initial adjustment period.

Even with the most judicious planning process, there will undoubtedly be some resistance to adopting new technology and processes on both sides. However, if this is accounted and planned for, you can prevent initial dissatisfaction from snowballing into decreased employee morale.

M&A as the foundation of business transformation

When executed successfully, M&A can serve as the foundation for long-term growth, especially as the market continues to look more optimistic. However, you’ll only be able to reap the benefits of this M&A market by optimizing your financial and technological stacks for successful integration.

This requires a concerted effort on the part of CFOs, CIOs, IT teams and others as they navigate the complexities inherent to M&As. However, the end result of this collaboration is a level of transformation that can drive business growth for years to come.

Daniel Reeve is Vice President of Sales at Esker.