The role of CFOs in deal making.

• Author: Heinz, Irmgard
• Position: Chief financial officers

Somewhere in the world, no matter what time it is, there's a chief financial officer thinking about a deal he or she is involved in. For something that represents just one responsibility on a long list, the role of deal maker can certainly account for a disproportionate share of mind.

There's a reason for this: mergers and acquisitions are often the most significant capital investment a company makes in the course of a year. Acquisitions represent a huge opportunity -- and also a huge risk. A bad deal can permanently damage the reputation of an executive team and its CFO.

Not every deal operates by the same rules, and no one strategy fits every company. There are many different ways to succeed at M&A. Yet, for all the differences in how companies approach M&A, CFOs typically play three basic and essential merger roles:

Merger Strategist. In this capacity, the CFO ensures that the merger plan meets larger corporate objectives. The CFO's role isn't limited to ensuring the deal's financial soundness; it also extends to shaping the strategy. What is the best target? How can the company mitigate what could go wrong?

Indeed, one of the strategic decisions CFOs need to help make is what sort of deals their companies should pursue. Traditional deal-making is only one tool in most companies growth kits--and "not necessarily the one that gets the most use," says Peter Kellogg, the CFO of Merck & Co. Inc. Nowadays, many companies pursue partnerships that involve licensing and joint development, manufacturing and marketing initiatives. "We seek to find a win-win approach that is financially logical," Kellogg says.

Synergy Manager. Synergies can take several forms, from the cost savings achieved by consolidating operations, to increased sales through new capabilities. But whatever the type of synergy, CFOs play a key role in creating the post-merger integration plan and identifying the people who can execute it. They also implement program-management systems to ensure synergy capture.

Business Integrator. Here the CFO identifies the changes related to personnel, processes and organizational structure that will best bring out a deal's value. While CFOs play a hands-on role in bringing the finance organizations of two previously separate entities together, there is often a role in integrating businesses and departments outside of Finance.

For example, the CFO's organization will define the performance metrics and establish the goals that must be achieved to justify the deal's purchase price. These goals may also be tied to the incentive-compensation system, putting the CFO at the heart of...