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M&A: Management Reporting During the Process

‚ÄčManagement reporting should reinforce the strategy and planning prepared by the executive team.  As such, key accountabilities from the strategic plan should be monitored periodically, depending on the measurement.  Ideally, the strategic plan will focus on major initiatives to improve shareholder value, and will identify specific responsibilities and accountabilities that must be extended throughout the organization.  Report timing and content will depend on the specific measure, and who in the organization structure is responsible for the deliverable.

For example, if a major new product is scheduled for launch in the strategic plan, specific deliverables may be identified for many of the functions, at various levels within the organization.  To be effective, the reporting will measure progress throughout the organization to ensure that the objectives are met.  R&D may have a project timetable with deliverables on the critical path to product launch.  In the detailed R&D project plan, weekly reporting may be required of the Project Manager, while he/she may prepare a monthly report of the department deliverables to the Project Director.  Similar detailed weekly reporting may also be prepared by the Manufacturing, Marketing, and Logistics organizations.  Monthly reporting to the senior levels will contain much less detail, but sufficient information to maintain control of the project.

Reports should be designed to provide enough information to effectively manage the project, and also inform those who are responsible for performance about the results of company efforts.  Effective reporting does not mean voluminous reports with company-wide distributions.  Clear concise reports with distribution limited to those who need to know are the best reports.

Reporting should go well beyond P&L's, and Balance Sheets and include metrics that measure the business drivers (e..g number of new products launched... number of new customers ... qualitative measures of performance such as on-time deliveries etc.).  Management reporting should be designed to measure the right things, with an appropriate measurement, at reasonable time intervals, reported to the right audience, prepared on a consistent basis.  Effective reporting will always be compared to another measure - e.g. plan, or history - and may include graphs to present trend information.  Sometimes numbers clutter, while images and trends can be more easily understood.  Graphs are very effective to present trend information.

The following pages provide an example of an acquisition summary used to summarize the expected results of an acquisition.  Critical elements of any acquisition include the following:

Executive Sponsor... an executive in the combined firm that will be held personally responsible for the successful completion of the venture.  This includes transition/integration through a planned status.  Note the signature line for the executive to accept responsibility for the investment.
Executive summary is a description of the investment, goals, timing and transition elements.  Examples of items that would be included in the summary might be new product introductions, completion of the integration by a specific year, cash flow commitments, and perhaps earnings per share goals.  Ideally, the summary will address people, process and plant/asset issues.  This will be the roadmap used to guide the Due Diligence, negotiation, and integration process.

  • Financial highlights of the transaction.  These may vary with every acquisition, but may include sales, cash flow, capital requirements, headcount, earnings per share.  The highlights should include all integration costs initially planned and modifications resulting from Due Diligence review.  Generally the financial highlights should be projected for a 2-3 year horizon, but in certain cases, additional years may be added.  Notes can be referenced for each line of the financial summary.  These may include brief explanations of some of the major financial highlights - e.g. headcount reduction in force... new data systems installed ... plant upgrade to current standards ... etc.
  • Critical Success Factors are those few - perhaps up to 5 - deliverables that will determine if the transaction was a success.  These Critical Success Factors may include hard (financial deliverables such as Earnings Per Share...), or soft factors - culture change has been completed... the new company has been fully integrated into the community ... relationships with governmental agencies have been raised to standard.
  • Transition/integration plan highlights are significant milestones, and related financial impact of major deliverables.  These could include resizing organizations ... new product launches ... realignment of facilities... integration of sales force.... new data systems.  Note that there is opportunity to describe both the P&L and Balance Sheet impact of these milestones.