How CFOs can pull their weight in M&A

“People really thought of the CFO as a chief accounting officer,” recalls the CFO of Xpansiv, the world’s largest online exchange for carbon offsets. “You closed the books and you paid the bills.”

Things have shifted dramatically, Taherian says. Among the changes: CFOs now get deeply involved in mergers and acquisitions.

“For CFOs today, M&A has to be a very key part of their role,” says Taherian, whose resumé includes $2 billion in M&A transactions and exits. Since joining San Francisco–based Xpansiv in 2021, she has helped lead several acquisitions to build out its infrastructure, including the recent purchase of brokerage Evolution Markets.

“In the ESG commodities space, M&A is a very powerful tool,” Taherian says. “It’s a very fast-moving space, a lot of new companies coming in, and so partnering with them in some way makes a lot of sense.”

Whether they’re playing a central role in a takeover or readying a company for acquisition, CFOs have cast off the bean-counter stereotype by driving M&A strategy. To raise their game, they must sharpen their people skills and keep a close eye on the rapidly evolving deal market.

“Anybody who tries to put the CFO in their CFO box is doing so at their own peril, because that’s not really their job anymore,” says J. Neely, senior manager for M&A with Accenture Strategy. “The CFO is like a strategic thought partner in many parts of the business.”

They “can be the deal quarterback,” describes Neely, who leads Accenture’s M&A practice globally and has worked with CFOs for 25-plus years while supporting major deals in a range of industries. “You end up talking to the CFO about the deal model and the synergy expectations of the Street and what the onetime costs are going to be and how you’re going to deliver that over X years,” he says. “But you also end up spending a lot of time talking to them about the future operating model of the business and how you’re going to make it work.”

Automation of routine accounting tasks has helped make the CFO’s job more forward-looking, says business adviser David Axson. At the same time, the explosion of access of data and sophisticated analytical tools plays to CFOs’ strengths, explains Axon, whose handle is The CFO Whisperer. “CFOs are able to take a much more active role, not just in looking at whether a deal makes sense once it’s being announced, but also in the prospecting for potential acquisitions, and also evaluating potential divestitures.”

Many CFOs now come to the job with operational business experience too, Axson says. Meanwhile, a growing number of CFOs are moving into the CEO’s seat. Axson points to his former client Don Allan Jr., president and CEO of Stanley Black & Decker. “That is a company that was largely created through a portfolio of large acquisitions.”

Early in her career, Taherian spent 15 years at Chevron Corp., joining its development program for senior finance leaders. “Chevron was developing CFOs, so I got to do a lot of M&A and a lot of controller roles,” she says. Unlike many of her peers, Taherian doesn’t have a CPA background. “I know how important accounting is, and I make sure we get our audits right, but I always understood the importance of M&A as a strategic tool,” says the co-author of a CFO’s guide to strategic transformations. “So when I came to it in a CFO role, it was natural for me.”

Ideally, Taherian has a “strong controller that closes the books and pays the bills and looks historically,” she explains. “Then my focus is looking forward, whether it’s growing organically, and budgeting and setting up the resources and strategy to do that, or doing acquisitions.”

Taherian, who has served as an acting CEO, also stresses the importance of a strong CFO-CEO relationship. “What I’ve tried very hard to do as a CFO is learn what the CEO’s vision is, where he or she is trying to go, and then how I can line up our financial resources to get them there.”

CFOs can also play a big part in preparing a business for sale. Joanne Cheng is CFO of Boston-headquartered Jellyfish, whose software helps organizations to manage and measure their engineers. Cheng, who has worked in software-as-a-service for 20 years, has long experience in M&A; she led care coordination specialist PatientPing through its acquisition by what is now Bamboo Health in 2021. “Making sure the company is ready and an interesting target for acquisition is often overlooked but is really key,” she says.

That’s especially true in today’s slower M&A market, argues Cheng, who says CFOs must get ahead of what people want to buy. “Are you investing in the right products?” she asks. “Are you investing in the right areas? Are your growth numbers correct? Is the cost in which you get that growth in line with what acquiring companies want?”

Two recent academic studies explore CFOs’ impact in M&A. Stephen Ferris, a professor at Ball State University’s Miller College of Business, and Sushil Sainani, assistant professor of finance in the Management School at the University of Liverpool, set out to determine if CFOs influence an acquisition from due diligence to post-deal integration. To do so, they created an index of CFOs at the roughly 1,000 U.K. firms listed on the London Stock Exchange from 1999 to 2017.

Using attributes such as board membership, financial expertise, compensation and seniority, Ferris and Sainani ended up with two CFO groups: influential and not-so-influential. The former group was more likely to do domestic deals, which are easier to integrate than cross-border transactions and are usually financed with cash, Sainani says. “The aspect that they have the most impact on, because of being a CFO and a financial expert, was that they pay a low price for these deals.”

Three or four years after an acquisition closed, the influential CFO group’s companies were much more profitable than those represented in the other group. “That’s one aspect which can give us confidence to say that influential CFOs are involved in these deals, and also they have the ability to create value from these M&As,” Sainani says.

For companies, one lesson is that CFOs deserve a leading role in M&A, he notes. “They are well positioned to help boards and CEOs identify the value—which are the potential financially attractive targets—because they have the financial skills.”

Another takeaway: the CFO-CEO relationship is crucial. One reason most acquisitions fail is the hubris of an overconfident CEO who overpays, Sainani says. Enter the CFO. “You need one person to at least challenge this guy who is the leader of the company, on the board, outside the board, and even help him when making these deals.”

In Germany, Ayse Karaevli, Chairof Corporate Management and Change at WHU – Otto Beisheim School of Management, also co-authored a study of how CFOs influence M&A decisions. To understand the degree and sources of that impact, Karaevli and her WHU – Otto Beisheim colleague Serden Özcan looked at 1,983 corporate acquisitions in the U.S. “Overall, we found that when CFOs have greater influence in the C-suite, companies are far less likely to destroy value by overpaying for acquisitions,” Karaevli says via email.

CFOs with a high degree of influence on M&A decisions have generalist skills, enjoy elevated status in the organization and can demonstrate independence from the CEO, the study found. “The CFO independence is particularly important, as premiums paid for acquisitions were 18% lower when the company’s CFO was not appointed by the incumbent CEO,” Karaevli says.

So how can CFOs raise their M&A game?

“Be sure that you don’t just understand the financial logic, that you understand that strategic logic,” Axson advises. “CFOs generally can look through a couple of balance sheets and say, ‘This business is undervalued.’ But then to look at what that company or that business is actually doing and say, ‘How does it add to the strengths of our overall enterprise today?’”

The reverse is equally true, Axson adds: “Do we have businesses that are a drag on the performance of the overall enterprise and we’d be better off divesting?”

CFOs should also be good with people, Axson maintains. “People skills have become the No. 1 or No. 2 skill of the CFO in the last five years.” Historically, someone got to be CFO because they excelled at managing numbers. “But today, success in a merger is often a function of culture, is often a function of integration of work-life environment between two different companies.”

For Axson, what’s happened at Twitter shows how profoundly a new owner can impact workers. “When you’re looking at a change in ownership, the people element’s become increasingly important.”

Talent shortages only add to the urgency, Axson says. “Getting the people component right may actually be the single most important critical success factor in M&A today, particularly when you’re acquiring talent.”

CFOs should also recognize that the valuation model for M&A in changing in some cases, Neely suggests. Accenture recently published a report on the evolution of M&A that discusses the rise growth-oriented deals. “It’s more about filling in a missing piece of the portfolio or buying additional capabilities and letting them cut across businesses,” Neely says of such transactions.

“Growth-oriented deals are becoming a staple in M&A, and leaders need a new toolkit to assess value in deals with technology underpinnings,” he adds. “Our year-long, cross-industry M&A analysis revealed that getting the most value out of these deals requires balancing a number of factors, including retaining acquired talent, potentially rethinking the operating model and determining how, and how much, to integrate these new teams.”

With interest rates climbing, Taherian expects M&A to get tougher as deals grow more expensive and as investors, lenders and the board seek to ensure that an acquisition will work. “The success of the acquisition is very much dictated by what happens after you sign,” she warns, noting that many companies fall short on the follow-through.

All signs point toward an even more vital role for the CFO in M&A. “This is where the CFOs have to know how to finance it, understand the business drivers to know what is a good acquisition that fits strategically in the business,” Taherian says. “And then somewhat get involved in the integration process to make sure that you are realizing the synergies that were expected when the two teams came together.”