The Cross-section of FP&A and M&A – Achieve Growth & Maximize Value With Centri

Most businesses’ primary objective revolves around enhancing equity value or market capitalization. For a publicly traded company, the goal is quantified by multiplying the share value by the number of shares outstanding. However, assessing the equity value of a private company is more complex. Unlike public companies, private companies don’t readily disclose their equity value for comparison. Instead, they rely on a market multiple derived from an applicable financial data point like revenue, EBITDA, or a similar financial metric for its given industry. Multiples are determined by a combination of precedent transaction analysis, examining market trends, and other valuation methodologies. Your Merger and Acquisitions (M&A) Advisor plays a crucial role in guiding your company through this process.

To achieve growth and maximize value, Management must gain insights into three critical aspects:

1. Understand where the business has been in the past
2. Grasp what the business is currently doing
3. Anticipate where the business is headed

Financial Planning & Analysis (FP&A) steps in as a powerful tool, weaving a narrative through the performance data generated by the business.

The information generated from the company’s Enterprise Resource Planning (ERP) system is the foundation for the analysis. Traditionally, ERP systems have primarily focused on generating the historical performance of the business, which was essential for investor compliance and lender requirements. However, the landscape has evolved. Businesses now strive for real-time digestible insights to facilitate swift decision-making in day-to-day operations (i.e., daily/weekly reports on sales, shipping, staffing) and streamlining financial closing processes. Leveraging both historical and current performance data, companies develop their budget and long-range targets. While there are different techniques for constructing the budget and long-range targets, realistic long-range stretch targets are used to allow a bottoms-up build-up of the budget, which will create a plan to achieve these goals.   

Using a long-range stretch target gives a view of where the business is going, while a bottoms-up build determines how that target is to be achieved based on the current operations of the business, known changes to the business, and any gaps that might exist in achieving the plan. By scrutinizing gaps and historical performance, decisions will be made around the direction and necessary changes needed to achieve the targets. Extracting relevant information and conducting the necessary analysis will be pivotal in steering the business. Strategic initiatives, such as acquisitions, divestitures, or mergers, may be part of a strategic initiative to achieve the target, and modeling these options is an important step to understanding the path forward.

How Centri Can Help

Centri provides comprehensive assistance to businesses, ensuring they establish a solid foundation and provide decision-makers within a company with the information needed to make decisions. This includes analyzing the current performance of the business and strategically planning for the financial future. Our M&A team is suited to guide companies through transformative options, shaping company strategy and legacy planning. Additionally, we collaborate with management to identify finance and accounting transformation initiatives. Our focus is on maximizing the utilization of financial information, implementing place best practices, and optimizing FP&A activities.