Mergers, Acquisitions, and the Financial Impact on Accounting

There’s no way around it — doing business is costly. Maintaining real estate, manufacturing products, providing services, coordinating logistics and transportation, managing employees and paying compensation, conducting marketing, acquiring new customers, providing benefits, carrying insurance — the list of possible expenses goes on and on. Being — and staying — profitable means executive leaders need to keep a very close eye on the bottom line. 

A merger or acquisition (M&A) is often a lucrative strategy to increase profitability by consolidating or aligning similar businesses, and can help grow revenue quickly while increasing market share. And the market is heating up; according to the Wall Street Journal, large deals related to M&A activity are staging a comeback this year. 

However, there are many costs associated with M&A activity that may not be uncovered until the deal is complete. Finance departments are often the first functional area under intense scrutiny to consolidate after a deal closes, and there can be high pressure for finance leaders to align teams and get the books in order. 

Beyond common M&A challenges for AP teams, there are also costly, time-consuming processes, disparate data, and potentially overlapping roles, systems, and tools that can negatively impact the bottom line. Here, we cover a few unexpected or surprising costs that can arise for finance and accounting teams during this critical period.

Cost of manual invoice processing

According to Ardent Partners’ State of ePayables 2022 report, the average cost to process an invoice is $13.11. But according to Adobe, processing an invoice can cost between $15 to $40. This number is impacted by various factors, including: manual work, errors, time waste, supply chain or vendor issues, payment fees, and mailing costs. Whether it’s $13 or $40, for one finance department processing 1,000 invoices a month, this is costly. For two, this can mean a significant impact on the bottom line as there are often redundancies across both entities. 

For those teams with no automation in place, manual invoice processing can result in an even greater burden on the accounting teams post-merger or acquisition. When two companies merge, their invoicing systems might differ, leading to complex processes to reconcile billing cycles, payment terms, and financial systems. This manual effort requires additional labor and increases the risk of errors, which can result in delayed payments, misallocated funds, and customer dissatisfaction. 

Furthermore, manual processes often lack scalability, making it harder for the finance department to manage a growing volume of transactions without proportionally increasing headcount. The cumulative effect can increase operational costs and slow down the integration process.

Cost of duplicate systems to maintain

Mergers and acquisitions often result in duplicate systems across the new combined organization. This can include financial software, enterprise resource planning (ERP) systems, customer relationship management (CRM) platforms, and more. Each of these systems comes with its own licensing fees, maintenance costs, and support requirements. 

Maintaining duplicate systems can be expensive, and integrating them into a single, cohesive infrastructure may require significant time and technical resources. Moreover, disparate systems can lead to data silos, making it difficult to have a unified view of the organization's financial health. This lack of insight across entities reduces understanding of overall vendor spend, opportunities for consolidation, and ability to negotiate contracts. The long-term cost to the business by not harmonizing these systems and removing redundancies can impact the bottom line for several quarters post-merger.

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Cost of overlapping teams and roles

Post-merger or acquisition, one of the most immediate costs involves personnel. Organizations often find themselves with overlapping teams and roles, leading to inefficiencies and confusion regarding responsibilities. For example, you might have two CFOs, multiple finance directors, or similar accounting roles across the merged entities. This redundancy can result in internal competition, lower morale, and misaligned objectives. 

Beyond overlapping roles, there is also an increased risk of attrition and potential loss of institutional knowledge. There is already a hiring crisis in accounting. A recent Wall Street Journal article explores the issue, and found that more than 300,000 accountants left the profession between the years of 2019 and 2021, a 17% decline in the talent pool. Ensuring top talent is retained is critical during restructuring. 

To resolve these issues, the organization must invest time and resources in redefining roles, fostering engagement, and potentially implementing layoffs or reassignments. This process is not only costly in terms of severance packages and other related expenses, but can also affect team morale, cohesion, and productivity during the transition.

Cost of unreliable data

The integration of two separate companies can expose discrepancies and inconsistencies in data quality. Each organization may have different standards for data collection, storage, and reporting, leading to a lack of reliable information post-merger or acquisition. This unreliability can hinder accurate financial reporting, decision-making, and compliance with regulatory requirements. 

Moreover, finance leaders with only one organization to manage face significant data visibility challenges. According to a recent survey conducted by Blackline, nearly 40% of CFOs do not completely trust their organization’s financial data. If facing the consolidation of two sets of data from two organizations, finance and accounting teams must invest significant effort in data cleaning, reconciliation, and validation to ensure a consistent and accurate dataset. This process can delay critical financial analysis and reporting, leading to a potential loss of stakeholder confidence and regulatory compliance risks. Ultimately, the cost of addressing unreliable data can be substantial, affecting not just the accounting team but the overall success of the merger or acquisition.

Using AP automation technology to reduce M&A costs

Technology plays a crucial role in streamlining processes and reducing costs for any accounting team. Implementing AP automation tools can drastically reduce the burden of manual invoice processing, minimizing errors, and speeding up payment cycles. 

According to market data report by Gitnux, AP automation can lead to up to an 80% cost reduction, and 9 out of 10 companies agree it’s worth the investment. With automation in place, repetitive tasks are completed efficiently, reducing time spent and errors associated with manual work. This allows staff to focus on more strategic activities, like financial analysis and planning.

ERP systems are another consideration after M&A activity. By consolidating these disparate systems into a unified platform, companies can reduce duplication, improve data accuracy, and achieve a more cohesive view of financial operations. A single ERP facilitates better communication and data sharing across merged entities, aiding in quicker and more accurate financial reporting.

Artificial Intelligence (AI) solutions are revolutionizing the way accounting teams manage through M&A consolidation, significantly reducing costs and increasing efficiency. Many AI tools are designed to complement the ERP and fill process and efficiency gaps for the AP team. With AI-driven automation, tasks like manual invoice processing and bill pay become hyper-efficient, and repetitive tasks can often be done autonomously, without human intervention.

AI's most significant advantage beyond eliminating mundane tasks is its ability to manage and digest large volumes of data. AI can surface the most relevant information to finance leaders for quick action and decision-making. AI-driven data analytics and business intelligence tools can also ensure data consistency and accuracy across merged entities, mitigating compliance risks and providing a reliable foundation for decision-making.

By integrating AP automation technology, and in particular AI-first platforms, companies can significantly reduce M&A costs, improve operational efficiency, and lay a robust foundation for successful post-merger integration.

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