What are the most common financial conflicts during deal integration?

1 Synergy realization

One of the main drivers of deal value is the expected synergies from combining the operations, assets, and resources of the two firms. However, achieving these synergies may not be as easy or as fast as projected, leading to financial conflicts between the parties. For example, there may be disagreements over how to allocate costs and benefits, how to measure and track performance, and how to deal with potential trade-offs or risks. To prevent or minimize these conflicts, it is important to have a clear and realistic synergy plan, with defined roles and responsibilities, timelines, and milestones, and to communicate it effectively to all stakeholders.

2 Accounting policies

Another source of financial conflict during deal integration is the divergence of accounting policies and practices between the two firms. Accounting policies affect how the financial statements are prepared and presented, and may have implications for taxation, valuation, and compliance. For instance, there may be differences in how the firms recognize revenue, amortize goodwill, or account for inventory. These differences can create confusion, inconsistency, and errors, and may require adjustments or restatements. To avoid or resolve these conflicts, it is essential to harmonize the accounting policies and practices as soon as possible, and to consult with external auditors and advisors if needed.

3 Financial reporting

A related issue to accounting policies is financial reporting, which refers to how the combined entity discloses its financial information to internal and external users. Financial reporting can be a source of conflict during deal integration, especially if the two firms have different reporting systems, formats, or standards. For example, there may be challenges in consolidating the financial data, ensuring accuracy and completeness, and complying with regulatory requirements. These challenges can affect the credibility, transparency, and timeliness of the financial reports, and may impact the stakeholder confidence and satisfaction. To avoid or resolve these conflicts, it is crucial to integrate the financial reporting systems and processes as quickly and smoothly as possible, and to establish clear and consistent reporting guidelines and protocols.

4 Financial controls

Another aspect of financial management that can cause conflict during deal integration is financial controls, which are the policies and procedures that ensure the reliability, security, and efficiency of the financial transactions and operations. Financial controls can be a source of conflict during deal integration, especially if the two firms have different levels of control quality, sophistication, or maturity. For example, there may be gaps or overlaps in the control activities, roles, or responsibilities, leading to duplication, waste, or fraud. There may also be resistance or compliance issues from the employees or managers who are used to their own control systems or practices. To avoid or resolve these conflicts, it is vital to assess and align the financial controls of the two firms, and to implement a common control framework and culture.

5 Financial culture

The last but not least factor that can trigger financial conflict during deal integration is financial culture, which is the set of values, beliefs, and behaviors that shape how the financial decisions and actions are made and executed. Financial culture can be a source of conflict during deal integration, especially if the two firms have different financial mindsets, priorities, or styles. For example, there may be clashes or tensions between the firms that have different approaches to financial planning, budgeting, forecasting, or risk management. There may also be differences in how the firms reward, motivate, or empower their financial staff or teams. To avoid or resolve these conflicts, it is important to understand and respect the financial culture of each firm, and to foster a shared financial vision and mission for the combined entity.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?