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The art of risk: guiding a company through financial straits

Tales of failed IPOs and acquisitions are a staple of the business media—look no further than Investopedia’s “Biggest Acquisition Failures of All Time” list. By many estimates, 70 to 90 percent of mergers and acquisitions result in a failed business. Shepherding a company through a potentially company-altering deal is fraught with risk. But those risks can be managed with a smart strategy—and by keeping a close watch on the deal’s progress every step of the way.

“There’s really only one person who has a view of the whole company, and that’s the CFO,” says J. Peter Bardwick, former CFO of predictive marketing software company Rocket Fuel and currently a corporate advisor and board member. “That broad perspective can be very useful in decision-making.”

Rather than just managing the financials, the CFO, together with the larger finance team, can advise on strategy. At critical points in a company’s growth, CFOs can suggest which options offer the best chance for success. Below are ways that CFO and financial teams can help manage risk and work with other departments to achieve better outcomes.

Assess sales strengths and weaknesses

While working on Rocket Fuel’s 2013 IPO, Bardwick spent significant time with the company’s sales team in order to gather as much information as possible about the company’s outlook. He would sit in on sales meetings, go out on sales calls, and even meet sales people after work for casual conversations.

“Understanding the qualitative side of sales is super helpful,” Bardwick says. By accompanying sale calls or meeting them after work for a beer, you might learn that a new competitor is hot on your heels, or that the sales team needs to start discounting in order to close deals. “As the CFO, I’m not comfortable telling stakeholders what’s happening in the business if all that information is only coming out of a spreadsheet.”

The company’s story goes beyond the numbers

Preparing a company to take a strategic risk requires the skills of a marketer, plus astute financial instincts, says Thomas Kramer, managing director of Remarque Advisory and formerly the CFO of Opower, which went public in 2014 and was acquired by Oracle in 2016.

“Creating an IPO prospectus is more marketing than financials,” Kramer says. CFOs have to work with sales and marketing teams to position the company to best advantage. “You can’t have just the financial team prepare the prospectus,” he adds. The company attracts investors by telling a story about where it came from, how it will achieve its goals, and why it knows its market better than anyone else.

Gauge staffing needs in advance of IPO or acquisition

Another part of managing risk and making sure deals go smoothly, Bardwick says, is managing talent. That’s not a responsibility that’s typically thought as belonging to the CFO, but one that matters tremendously when a strategic change is in play.

“One of the risks and opportunities in growing that quickly is maintaining the culture that made the company successful, and the quality of the people you hire,” Bardwick says. “Having good people reduces risk.”

CFOs should ensure that staffing of key departments, such as R&D, remains healthy so that growth isn’t stalled after the deal is complete. For example, Bardwick suggests, if your company is being acquired, key personnel should be offered extra compensation (such as equity) to ensure they’ll stay through the deal.

The flip side is dealing with the eventuality of layoffs. As Oracle’s acquisition of Opower moved forward, Kramer knew Oracle would seek staff reductions. He worked with Oracle executives to determine how to cut headcount without disrupting the business—for example, giving key accounting personnel year-long contracts. With the cushion provided by contracts, Kramer says, “practically everybody had a new job before they needed to move on.”

Get ahead of corporate housekeeping tasks

Given their broad view of the enterprise, CFOs are in a unique position to help organizations prepare to go public, acquire or be acquired. Preparation plays a role in managing the risk of such a change, Kramer says. “It forces you to do housekeeping.”

As the acquisition of Opower approached, Kramer established an “operational data room”—a virtual storehouse of documentation that would help company leaders assess the software and systems they have in place. Software, licenses, workflows—anything and everything that keeps the company an up and running—can be accessed quickly, giving operations teams a head start when deciding what the newly formed entity needs in the future.

Track progress, obsessively

Perhaps the riskiest part of major change is whether the outcome will be positive. “Post-merger and acquisition is where many companies fail,” Kramer says, reflecting on Opower’s acquisition. Oracle had acquired dozens of acquisitions before Opower, but Opower was going through the process for the first time. Kramer and other finance leaders established an “integration organization” with members from several departments. The integration team met weekly and delivered progress reports to the CFO and other C-level leaders, identifying and solving problems as the two companies merged operations. With constant reporting, “you’ll improve the chances that the acquisition will succeed,” Kramer says.