There are particular considerations involved in analysis and control for acquisitions

1. Financial Analysis Series:
ACQUISITIONS
CONTROLLING AND
ANALYSIS

2. Statement of the Issue
• In large, complex and acquisitive companies, it is difficult
to keep track of the success of
acquisition success vs.
integration management vs.
ongoing operational management.
• The results of these activities must be mapped onto the
budgeting process and tracked by a controlling function
• To avoid a conflict of interest, the responsibility to
control and measure the success of these activities is
separated from the other three functions
• Control to ensure that the terms of the
acquisition/merger agreement are being upheld
© Robin Bhattacharya 2010. All rights reserved.

3. Methodology
• Tracking over a multi-year timeframe using a “summing
up” methodology
• Correct attribution of the results, especially the
integration costs or gains, must be ensured to avoid
incorrect measurement, cross-subsidisation, etc.
• The acquisitions controlling function will establish the
distribution of revenues and costs between the two
previous entities (existing and acquired operations) and
identify the synergies (integration management)
Even if the operations are managed by a combined (single)
management, it is important to separate the figures to measure
the success of the original acquisition estimates
© Robin Bhattacharya 2010. All rights reserved.

4. Sources of information for the new operational
budget
multi-year
Integration management/ plan 3
realisation of synergy plans
Acquisition
Process multi-year New Operations
budget 2
Acquisition(s)
(incorporating
acquisitions)
Existing
operations one-year budget &
multi-year budget 1
Sources
1. Pre-existing budgets
2. Target’s pre-existing budget vetted and/or modified by acquisition team
3. Plan put together by acquisition team as part of the calculations for pricing
(which will consider revenue/cost synergies)
© Robin Bhattacharya 2010. All rights reserved.

5. Sources of the results
Synergies Integration management effect
nominal Acquisitions Acquisition effect
growth
before
acquisitions
Existing Management of baseline
Existing operations (existing) operations
operations
Once the actual results are split up into the three sources, then the results of
the various functions can be estimated
• operational management; and/or
• the integration function; and/or
• analysis and estimation of the acquisitions’ effect (acquisition valuation)
© Robin Bhattacharya 2010. All rights reserved.

6. Culture
• Culture is quoted as the most important differentiator
separating successful M&A from failures
• Therefore, cultural aspects and the integration of
another firm’s different culture must be considered and
planned for integrally. A short list of issues to examine:
Authority Attitude to and of employees
Chain of command Champions vs. team players
Decision heirarchies Method of rewarding
performance
Teams vs. departments
Internal vs. external hiring
Freedom to act independently
Processes
Risk tolerance
Definition and flexibility of
Perfecting existing methods budgeting, decision making
vs. Star Trek and other processes
© Robin Bhattacharya 2010. All rights reserved.

7. Politics
• Internal politics will play a large role in every aspect of
an acquisition and must be duly considered:
Vested interests related to or within the company may push for/
against a deal. In detail that may involve over/under valuing
several aspects in a proposed deal and will often include either
rosy or pessimistic projections.
• There are various ways of dealing with politics in
general, but the principles for M&A should include:
Create a neutral body that can double check analyses on a
detailed level
Ensure that the goals and targets held before an acquisition
(e.g., synergies) are not left behind in post-acquisition planning
Hold departments responsible for their estimates – this will filter
into the operational evaluations after acquisition
© Robin Bhattacharya 2010. All rights reserved.

8. Structure
• The structure depends on the firm-specific and pre-
existing structure, which may or may not require
modifications.
• Structure will also be reflected in terms of acquisition
regularity, horizontal vs. vertical, technology fit, retention
of management, etc.
• Aspects to focus on:
Modifications in the business due to integration are clearly
identified and not loaded onto the pre-existing business line
Forward planning does not disregard the acquisitions planning
prior to the investment
The views of the departments responsible for operational
realisation must be considered before the acquisition estimates
are made
© Robin Bhattacharya 2010. All rights reserved.

9. Structure (cont’d)
• Aspects to focus on (cont’d):
Issues such as transfer pricing should be explicitly taken into
account as they were for initial synergy estimations.
Responsibilities for
(i) ongoing operations,
(ii) acquired operations and
(iii) synergy realisation
must be clearly defined to avoid the losing track or double
counting
Communications between those responsibilities must be
formalised
For more information, please contact
RobinBhattacharya@yahoo.com
© Robin Bhattacharya 2010. All rights reserved.

10. Appendix: Interrelation and fit with other
analytical financial functions
Corporate Financial
Strategy Communications
Operational Financial
Analysis Analysis Valuation
Performance
M&A Support
Monitoring & Control:
Acquisitions Treasury
Strategic
Investment & Due Diligence
Asset Management
© Robin Bhattacharya 2010. All rights reserved.