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Chief Financial Officers (CFOs) play a pivotal role in shaping the destiny of strategic ventures. Beyond their traditional financial responsibilities, these financial architects hold the key to unlocking the full potential of mergers and acquisitions. In this article, we will explore M&A from a CFO’s perspective with David Barnes, Chief Financial Officer at Trimble Inc.
“When you’re talking to big-equity investors, you can’t please them all, all the time. You have to use your judgment and make the best decisions to drive value over the long term, ” – David Barnes
How CFOs are Involved in M&A
The CFO acts as the eyes and ears of the shareholders, making sure that every big financial decision the company makes, goes well. And since M&A is the biggest financial decision a company can make, David oversees the corporate development team over at Timble. Regardless of the deal size, he is deeply involved in the strategic planning, negotiation, and integration aspects of acquisitions.
Compared to the CEO, the CFO handles more detailed work and has day-to-day involvement with bankers and deal-related tasks.
Budget Allocation
When it comes to prioritizing deals, David Barnes shares a framework they use at Trimble Inc. With the company's purpose to transform industries through technology, they aim to allocate capital to opportunities that align with this vision.
1. Internal Capital Allocation - They spend money and time on the organic growth of their own business unit. They assess opportunities based on their alignment with the company's strategy of creating connected solutions for end markets.
2. External Capital Allocation - This involves using cash flow and financial resources beyond internal operations. There are two types of external capital allocation at Trimble.
3. M&A - They buy compelling businesses that can add value to them while driving their overall strategy.
4. Repurchasing Shares - They buy back shares to offset the dilution of their equity compensation program and keep the share count relatively constant.
Integration From a CFO’s Perspective
CFOs play a huge role in dedicating resources and budgets for integration activities. Over at Trimble, they have a dedicated team for integrations, which makes budgeting a lot easier. They already have predetermined checklists of previous costs to make sure that there is a budget ready for an acquisition.
According to David, the bigger challenge for them is determining the pace of integration for each acquisition. They understand that while more integration is key to creating more value, there are pragmatic limits to how much integration can be achieved at once.
Biggest Lessons Learned
Surprisingly, managing the finances is the easy part, says David. While valuations and forecasts are essential in the M&A process, the true value creation lies in two critical areas:
1. Strategy
Get the strategy right. Understanding how the acquired business creates value for the parent company is paramount to the success of the acquisition.
2. The Human Element
Every business is a collection of people: the employees, the customers, suppliers. To succeed, CFOs must invest time and thought into understanding the motivations of all stakeholders involved.
For CFOs leading the M&A process, the human element and empathy play a vital role alongside financial calculations, as the success of the deal ultimately hinges on the alignment of both aspects.