How to avoid a hot mess of merged intercompany chaos
Complex, fragmented processes cost conglomerates and could hamper plans to grow businesses this year.
Are you hoping to grow the various businesses under your umbrella in 2023 or add more entities to the “family”? Despite the uncertain economic times in which we find ourselves – inflation and interest rates are on the up and the threat of a recession is refusing to abate – many conglomerates have ambitions to expand, either organically or via acquisition.
In its M&A 2023 Outlook report, law firm Corrs Chambers Westgarth forecast healthy activity in the local mergers and acquisitions space from mid-2023 onwards.
“We anticipate structured M&A to become more dominant, continuing the increased use of bespoke deal structures to bridge gaps between buyers and sellers,” Corrs head of corporate Sandy Mak told InvestorDaily.
“We also expect strategic acquirers to be more prevalent and successful in 2023, with previously ‘out-of-favour’ sectors offering interesting M&A opportunities in the Australian market.”
Transport, healthcare, insurance and tourism assets are likely to be placed under the investor microscope, as those sectors continue to rebound from the COVID-19 knock, the Corrs report says.
It’s complicated
But while adding more entities to the fold can be a positive development for many conglomerates, employees working on the finance front won’t necessarily see it that way. More entities in the mix means more complexity and confusion. We are talking different legal entity structures, different funding structures, shared services arrangements that can’t be easily unwound and fragmented technology systems, in some cases dozens of enterprise resource planning (ERP) systems that don’t talk to each other.
What is the chance of establishing consistent, reliable intercompany accounting processes against that backdrop? In my experience, having spent several years working in the space, I would say slim to none.
Many finance professionals find themselves having to contend with what might best be described as a “hot mess” in that it’s error prone, highly manual, and something that could cost the organisation in many ways.
When it breaks – and break it inevitably does – it can cause damage to the reputation of the businesses and their bottom lines. It is an impediment to groups achieving the efficiencies and economies of scale that mergers and acquisitions promise to deliver. In some cases, it may even stand in the way of further growth.
Standardising on a single solution
Adopting standardised intercompany processes, supported by a platform that automates intercompany transactions, is an economical and expeditious way to proceed. This is an approach we call intercompany financial management.
Groups that do so enjoy on average an employee staff efficiency gain of 60 per cent, a reduction in days closed and reduced process costs of around US$1.8 million, according to BlackLine research. But what should you look for in a solution?
Select one that’s compatible with multiple invoicing, treasury and ERP systems, and you’ll find posting intercompany transactions quickly and accurately will cease to be a challenge.
Fully aligned charges and balances equal straightforward, speedy settling of intercompany balances. And the power of automation means less manual work for you.
Bigger and better
Hitting the M&A trail will be the preferred expansion strategy for many conglomerates as they continue their growth journeys in the wake of COVID-19. If yours is among them, investing in intercompany solutions will make bringing new brands and businesses into the fold smoother and simpler. For the respective accounting teams, tax, treasury and all those that touch intercompany, it’s a sure-fire way to ensure the various entities under your umbrella all end up on the same (ledger) page.
Jim Tilk is the director of solution strategy at BlackLine.
