Kimberley Rowan outlines some of the new measures contained in Finance Bill 2015, with a focus on measures that were not announced on Budget Day. Budget 2016 is the second budget to unwind some of the austerity measures introduced to combat the effects of the recession, while also including measures to support recovery in the domestic economy. The Minister for Finance, Michael Noonan TD, announced anticipated reductions to the Universal Social Charge (USC) for a second year in a row, much to taxpayers’ delight. The reductions promised on Budget Day are brought into effect through Finance Bill 2015 (the Bill). From 1st January 2016, therefore, workers and pensioners will see an increase in their take-home pay or pensions. The Bill also includes other measures announced on Budget Day in addition to a number of changes that were not announced by the Minister during his Budget speech on 13th October, many of which are of a technical or administrative nature. Personal tax The Bill gives effect to the personal tax measures announced on Budget Day such as the reductions to USC rates, the increase in the home carer credit and the extension of the home renovation incentive. Details on the earned income credit for self-employed people, which was announced on Budget Day, are also included. New measures in the Bill include an income tax exemption for vouchers and an exemption for expenses reimbursed to non-resident directors. Tax-free vouchers Employers may give a voucher worth up to €500 to their employee free of income tax, PRSI and USC. The Bill provides that this measure will commence on 1st January 2016. During Second Stage debate on the Bill, however, the Minister for Finance noted that an amendment will be made at Committee Stage thereby enacting the measure from the date of publication of the Bill (22nd October). Terms and conditions also apply, so it is important to read the details. Non-resident and non-executive directors Vouched expenses for travel and subsistence incurred by a non-resident non-executive director will not be subject to Irish income tax from 1st January 2016. The expenses must be incurred solely for the attendance at meetings relating to the affairs of the company in the capacity as director. Revenue’s previously published position on expenses for travel by non-executive directors attending board meetings (eBrief No. 61/14 and Part 5 of the Revenue Tax and Duty Manual) continues to apply to cases up to 1st January 2016. eBrief No. 61/14 (which applies until 1st January 2016) sets out the following:   The position in relation to the tax treatment of expenses for travel and subsistence incurred by non-executive directors in attending board meetings; Confirms that, generally speaking, no deduction is due to a non-executive director in respect of such expenses; and Confirms that, where such expenses are met by a company on a director’s behalf or are reimbursed to him, PAYE/USC must be deducted.  The position, as provided for in Finance Bill 2015, will apply from 1st January 2016. Corporation Tax Much-anticipated details on the workings of the Knowledge Development Box (KDB) are covered in the Bill. Other corporation tax measures in the Bill deal with Country by Country Reporting (CbCR) and the extension of corporation tax relief for start-ups. Knowledge Development Box  This initiative was first mooted in the Minister for Finance’s budget speech last year. Since then, the Department of Finance conducted a consultation on the KDB and related legislation. The Minister announced in the Budget that the Irish KDB will be the OECD’s first fully-compliant preferential regime. The Bill also confirms that the regime is following the OECD “modified nexus” approach. The KDB will provide for an effective 6.25 per cent corporate tax rate on profits from patented inventions and copyrighted software earned by an Irish company to the extent that such income relates to research and development undertaken by that company. The relief is available to companies for accounting periods beginning on or after 1st January 2016 and before 1st January 2021. Technical amendments to the proposed regime are expected at Committee Stage. The Minister also signalled additional legislation from the Department for Jobs, Enterprise and Innovation to deal with implementation of the KDB regime while guidance from Revenue is anticipated later in the year. Country by Country Reporting  CbCR is a product of the OECD’s initiative on Base Erosion and Profit Shifting (BEPS), and Ireland is one of the first states to introduce this measure. The Bill allows Revenue to create regulations that give effect to the manner and form in which CbCR is to be provided. New regulations are expected by the end of this year, and will be based on OECD guidelines. The regulations will require Ireland-resident parents of large multinational groups to provide annual reports to the Revenue Commissioner detailing a range of information including employee numbers, stated capital, retained earnings, tangible assets, the group’s profit before income tax, and income tax paid and accrued. These reports will likely be shared with other tax jurisdictions to confirm whether the multinational in question is engaged in base erosion and profit shifting or not. Employment and Investment Incentive Finance Act 2014 included amendments to the Employment and Investment Incentive (EII), the introduction of which was subject to a Ministerial Order. Further changes were also announced on Budget Day and provided for in the Bill. The amendments came into effect on Budget night (13th October) by Financial Resolution. Some of the amendments to the terms of the EII aim to ensure that the incentive complies with the European Commission’s general block exemption regulations from a state aid perspective. A qualifying company must now meet the requirements of Paragraphs 5 and 6 of Article 21 of Commission Regulation (EU) 651/2014 of 17th June 2014. Revenue published eBrief No. 107/15, which deals with the administrative aspects of the changes. In the eBrief, Revenue advises any company that received EII outline approval prior to 13th October 2015 but had not raised EII funding by that date must now consider – before issuing shares – whether it is a qualifying company under the amended scheme or not. Revenue also published a summary of the changes to the EII. We can expect to receive frequently asked questions from Revenue on the revised incentive while an updated Form EII Outline is due to be published shortly. Corporation tax relief for start-ups  The three-year corporation tax relief for start-ups was due to expire at the end of 2015 but will be extended for a further three years, benefiting trades which commence before 31st December 2018. Capital taxes The Bill provides details on the new Capital Gains Tax (CGT) Entrepreneur Relief, which was announced on Budget Day, and a new CGT clearance (CG50) threshold of €1 million in the case of disposals of apartments and houses. The increase to the Group A threshold for Capital Acquisitions Tax (CAT) purposes, as announced in the Budget, is confirmed. Entrepreneur Relief  The previous version of Entrepreneur Relief, introduced in Finance (No. 2) Act 2012, is to cease from the end of the year. The relief was dogged by restrictions, which in practice made it very difficult to access. The new version of Entrepreneur Relief provides for a reduced rate of CGT of 20 per cent on chargeable gains on the disposal of chargeable business assets made by an individual on or after 1st January 2016 up to a lifetime limit of €1 million. The individual must have owned the chargeable business assets for a minimum of three years prior to the disposal. Other conditions also apply. The relief, as drafted in the Bill, is not as generous as expected and falls short compared to similar reliefs available in other jurisdictions such as the UK. The many conditions of the relief will limit its application to certain entrepreneurs. Revenue has indicated that there will be a number of amendments to the relief at Committee Stage. It is expected that some prescriptive conditions will be relaxed.   Capital Gains Tax clearance CG50 clearance on the disposal of a house or apartment will only be necessary when the proceeds of sale exceed €1 million. The €500,000 threshold remains in place for disposals of other assets falling within the scope of tax clearance. It is likely that the €1 million threshold applies only to houses and apartments due to the volume of clearance applications received by Revenue. The €1 million threshold will be introduced on 1st January 2016. Revenue published eBrief No. 106/15 to clarify that the existing threshold of €500,000 will continue to apply to disposals of houses or apartments made on or before 31st December 2015. Value Added Tax VAT did not feature much in the Budget speech. The Minister for Finance referenced the benefit of the nine per cent rate and the abolition of the air travel tax for the tourism sector in Ireland, but no VAT changes were announced. While the Bill did not signal any major policy changes, a number of technical changes are proposed – mainly to deal with VAT fraud and anomalies in the legislation, and to clarify existing provisions. The proposed VAT changes include the following:   Revenue can cancel VAT registration numbers and publicise situations where a cancellation has taken place in the protection of VAT revenue; and A reframing of what constitutes educational activities for VAT purposes following recent appeal decisions at both European and domestic level, so that the exemption applies only where specified recognised bodies carry out the activity. Revenue can also determine that a specified activity is subject to VAT where its exemption creates a “distortion of competition”. Administration The Bill contains a number of proposed changes regarding the administration of the tax system, but three proposals stand out as having most general application. Requirement to file a return The Bill proposes changes to the definition of a chargeable person (an individual who is required to file a self-assessment income tax return). The level of non-PAYE income that can be coded against tax credits will increase from €3,174 to €5,000. This in turn changes one of the tests to determine if an individual is a chargeable person for self-assessment purposes. Guidance from the Department of Finance also proposes to reduce the current gross limit for non-PAYE income from €50,000 to €30,000, which is also a test to determine self-assessment. This measure does not require legislative change, according to the Department of Finance’s publication. Therefore, the overall effect of these measures will most likely result in little change to the number of individuals subject to self-assessment. Record retention In the case of a cessation of trade, records must now be retained for five years from the date of cessation. This change is proposed in an effort to comply with the Global Forum on Tax Transparency and information exchange. There is no proposed change to the current requirement to retain linking documents and records for six years. Revenue clarified that the retention period in the case of a cessation of trade is not increased to 11 years. It seems that the five-year period may run within the six years. Penalties Proposed changes to the penalty system should also allow Revenue to impose penalties for incorrect returns where no tax was at issue.  It seems that this amendment was triggered by an incorrect claim for a refund of Relevant Contracts Tax (RCT), but no penalty was applicable as no tax was owed by the taxpayer. Reporting issues While introducing another Finance Bill, Finance (Miscellaneous Provisions) Bill 2015, to the Dáil, the Minister for Finance announced a proposed amendment to the Taxes Consolidation Act 1997. A new Part in the Taxes Consolidation Act 1997 is proposed to deal with Revenue’s treatment of confidential taxpayer information and disclosing such information to the Law Society of Ireland. This amendment allows Revenue to disclose confidential taxpayer information to the Law Society of Ireland in such circumstances where the tax advisor or agent is a solicitor, ensuring equal treatment across the range of “tax advisors”. Currently, personal and commercial information revealed to Revenue for tax purposes is protected against unauthorised disclosure. However, Revenue can use taxpayer information to report a tax practitioner to a professional body where Revenue is satisfied that the work of that practitioner does not meet the standards of the professional body. The provisions do not currently cover practitioners who are not members of a professional body or who are members of the Law Society of Ireland. Finance Bill timeline At the time of writing, the Committee Stage of Finance Bill 2015 is scheduled for 17th to 19th November and will be followed by the Report Stage on 24th and 25th November. The Bill is expected to be signed into law in December. Amendments made before the Bill is enacted into law are not reflected in this article.   Kimberley Rowan ACA, AITI Chartered Tax Advisor is Tax Manager at Chartered Accountants Ireland.

The first Conservative budget in 20 years may have ostensibly been pro-growth, but one decision will certainly not be greeted with cheer by family-owned or owner-managed businesses in Northern Ireland, writes Maybeth Shaw. It has become commonplace for economic policy to be discussed through a corporate lens, so that questions of what is positive or not for business are assessed in terms of their impact on the multinational sector. In such a mindset, the role of the SME sector as the real engine of most economies – including Northern Ireland – can often seem to be an afterthought. July saw the UK’s first wholly Conservative Budget in almost 20 years, styled by Chancellor George Osborne as “a Budget that puts security first” and one that set out to reward hard work. Those who lead SMEs might reasonably have hoped, therefore, that the central role they played in safeguarding the country’s sense of economic security over the last few years would be recognised. A host of changes are certainly in the pipeline for SMEs but one of the most significant, in the area of remuneration planning and the tax efficient extraction of funds, is set to disappoint rather than reward and is likely to prove a costly headache for family-owned businesses in years to come. The issue arises from a change in the tax treatment of funds extracted by business owners by way of a dividend. Dividends are currently taxed at an effective rate of zero per cent for basic rate band taxpayers, 25 per cent for higher rate taxpayers and 30.56 per cent for additional rate taxpayers. As announced in Budget 2015, from 6th April 2016 the approach will change significantly. Each taxpayer will instead have an annual tax-free dividend allowance of £5,000 and, where additional dividends are withdrawn, they will be taxable at 7.5 per cent for basic rate band taxpayers, 32.5 per cent for higher rate taxpayers and 38.1 per cent for additional rate taxpayers. Table 1 illustrates the different tax treatments that will apply to those extracting funds either as a dividend or as a salary in 2015/16 and 2016/17. Consequences A likely interpretation of these Budget changes is that they were made to address the issue of sole traders and the self-employed incorporating their businesses in a bid to avail of a preferential tax regime. Closing such a loophole is perfectly understandable, but it fails to reflect the reality of genuine SMEs and the vast majority of business owners who wish to invest in and develop their business. The new tax regime can only mean that these business owners must either cut the amount of money they use to fund their personal and family lifestyles, or accept that there will be less money within the business to support its future development. Neither can be viewed as pro-business in either execution or consequence. The changes, of course, are not specifically targeted at family-owned businesses, so it is worth reflecting on why this group will be the most impacted. For those who run a family or owner-managed business, it is typically the main or only source of existing and future family wealth and sustainability. Therefore, any issue around extracting money from the business in a tax-efficient way is especially pertinent. Family-owned businesses, like all businesses, have benefited from the reduced corporation tax rates of recent years – a policy approach that made extraction by way of dividend more tax-efficient than alternative approaches, which involved awarding the business owners an increased salary or bonuses. For obvious reasons, dividends became the preferred extraction method in family-owned businesses, allowing owners to fund their personal and family lifestyles while still supporting the growth of their business. The most common business structures set to be impacted by the new rules are companies run by two spouses where both take dividends to help fund their living expenses. Take a husband and wife, for example, each of whom draws £25,000 of net dividends from the business and have £10,000 of other income (typically a salary from the business to maintain their national insurance contributions and future entitlement to state pensions or benefits). In the 2015/16 tax year, there would be no additional tax to pay on extracting the funds by way of a dividend as this is below the basic rate band. In 2016/17, under the new rules, while the first £5,000 of dividends will be covered by the tax-free allowance, the remaining £20,000 will be taxed at the 7.5 per cent rate. This will result in an additional £1,500 in tax for each spouse. For business owners whose dividend extractions are higher than that shown in this example, the pain points will be correspondingly greater when the new rules apply. Alternatives Given that the changes do not come into effect until April 2016, financial advisors can expect a surge of queries from business owners in relation to maximising the dividend yield from their businesses. All steps should be followed to secure the greatest tax advantage, but there remains the question of how best to mitigate future tax charges on dividends in subsequent years. Pensions remain a tax-efficient means of extraction and, particularly in businesses where owners are close to retirement age, there will be strong arguments to see pensions as an effective medium-term mitigation strategy. In all cases, of course, pensions have a key role to play in effective business planning. A further consideration for business owners is the possibility of retaining and rolling up profits within the business, where such profits would then be subject to corporation tax rates, and delaying the extraction of money from the business until an eventual exit. This is not a strategy that can be applied universally but where a business exit is under consideration or actively being planned, there is a great deal to gain from taking such a course. An exit from the business will generally be treated under the Capital Gains Tax (CGT) regime and the preferential CGT rate available via Entrepreneurs’ Relief (ER). ER allows business owners to pay reduced CGT when selling all or part of their business – 10 per cent on qualifying assets as opposed to 28 per cent – so long as they meet certain qualifying conditions. With up to £10 million of lifetime gains potentially qualifying for relief, ER can represent a significant saving for family business owners in exit mode. For those who are committed to retaining and growing their businesses, there are no simple solutions. Whatever approach is taken to lessen the impact, it will have to be tailored to the specific circumstances of the business and the requirements of the family in question. As this issue will impact on virtually every family-owned and owner-managed business in Northern Ireland, financial advisors can expect it to be a priority topic as they address their clients’ service needs in the months ahead.   Maybeth Shaw is a Tax Partner at BDO Northern Ireland.

Melanie Sheppard, Financial Director at Pfizer Healthcare Ireland, speaks to Stephen Tormey about career progression, gender inequality and the broader benefits of the Chartered Accountant training. Since joining Ernst & Young as a trainee auditor in 1991, Melanie Sheppard has climbed the corporate ladder with a steady determination. The Chartered Accountant is now Finance Director at Pfizer Healthcare Ireland and was recently voted one of Ireland’s 25 most powerful women in business by the Women’s Executive Network, but her career path wasn’t always linear. From sideways moves with associated salary cuts to job interviews in airport terminals, there are aspects of Melanie’s career that could only be described as unconventional. However, the Dundrum native has made her mark on several businesses in several industries over her 24-year career. Career path Melanie, who is a Fellow of Chartered Accountants Ireland, completed a BSc in Management at Trinity College Dublin before entering the working world with Ernst & Young. While the majority of her career has been spent in the realm of industry, she credits her audit training with much of her success. “Audit gives you a feel for different cultures in different companies,” she said. “You also had to engage with the different partners, the clients and the various members of their teams to get what you needed to complete the job while being respectful so it was a great way to learn how to interact with people.” After almost five years working with a range of clients including the K Club, Coca Cola and UNIFI, Melanie left the world of practice for an internal audit role with Sony in London. For her, it was a logical next step that allowed her to broaden her horizons beyond audit. 18 months later, she had moved to Aspect Telecommunications where she was responsible for statutory reporting and compliance for eight European entities within the group. While Melanie’s career was blossoming in London, the lure of a move home began to grow. “I remember coming home for weekends and seeing all the job ads in The Irish Times,” she said. “I felt that, if I didn’t come home at that stage, I could miss the opportunity. So it was timing more than anything else – plus, the lease was up on the house where I was staying.” Melanie duly sent her CV to a number of firms in Dublin but one company in particular caught her attention. “I met Nicky Sheridan, who was setting up Oracle’s shared services centre in East Point, in Terminal 1 at Heathrow and I really loved his personality,” she said. “And he liked the fact that I was managing the reporting for eight countries out of a base in Stockley Park so it was a natural fit.” Melanie later joined Oracle as employee number 19 and a member of the management team. She played a key role in growing the business, which is still in operation, into one that managed back-office finance functions for 43 subsidiaries and handled $3.8 billion in revenue. “It was hard work but it was a young workforce, so everybody was at that energised stage and it was an infectious place to be.” While Melanie was very passionate about Oracle, she reached a point where she knew every aspect of the business. “The challenge then for me was to find somewhere that was going to give me that energy, so I moved sideways from Oracle as a senior manager to Pfizer as a senior manager – and I took a salary cut to do it,” she said. “I was getting in at ground level and I really loved that the last time. When I joined, there were around 20 of us and we were setting up Pfizer’s shared services centre using the Oracle platform so it was like destiny.” Words of advice After growing the shared services team to 103 employees managing reporting for 214 legal entities, Melanie joined the business proper as Finance Director where she is now a member of Pfizer’s country management team and board of directors. While much of her career success has been down to her own hard work and instinct, she has worked with a total of 21 bosses from 17 countries – just two of which were female. This breadth of experience has taught key many key business lessons throughout her career. When it comes to driving performance, Melanie believes that trust is the key ingredient for success. “I don’t like being micro-managed and I don’t like to micro-manage,” she said. “Managers should be like the stabilisiers on a bicycle – you will support your team and won’t let them fall, but the onus is on them to come to you if there’s a problem.” She also believes strongly in the art of listening when managing up. Her advice is to let people finish the asking of their question before providing an answer and where you don’t have the answer, say so but be sure to get back to the manager in question. “Don’t just kick to touch and run out the door thinking you got away with it,” she said. On the issue of gender equality, however, Melanie is “torn” as to the best way forward. “I hear so much about quotas and I get torn because I would be concerned if I thought I was only somewhere because I was filling a quota,” she said. “I want to feel that I’m where I am because of what I do and how I do it.” While Melanie is keen to see the gender imbalance improved through diversity initiatives within Irish businesses, she credits the growth of women’s networking events as a positive step on the road to equality. “They have grown without negativity, which is fantastic,” she said. “And sometimes men would like to be in those networking events, but we have to make sure that we don’t exclude people because we won’t solve the diversity issue without men being involved.” A marathon effort Throughout her career, Melanie has demonstrated a determined streak that has helped her achieve her goals. While she describes herself as “a hard worker”, her determination is also apparent outside the office. “A friend once read an article that said everyone has a marathon in them before saying ‘everyone except you’, so I did one,” she said. While golf is Melanie’s hobby of choice, she trained diligently for the 2008 Edinburgh Marathon spurred on by the suggestion that it was out of her range. “There was a challenge, and I loved the sense of discipline in the training and actually running the marathon,” she said. Despite finding herself in tears at the start line, Melanie completed the marathon and has since taken part in triathalons, adventure races, long-distance cycles and other marathons. The discipline involved in training for such events, according to Melanie, is similar to the discipline instilled in Chartered Accountants through their training – something that has stood her in good stead in various aspects of life. “Chartered accountancy is a phenomenal brand but sometimes we undersell ourselves,” she said. “It’s important for people to see it as a really great starting point that can take you anywhere. And if I look within my own teams, I’ve hired lots of Chartered Accountants because they have a disciplined way of approaching problems and eating the animal bite by bite. They never give up.”

With M&A activity now gathering pace, particularly in the accountancy profession, Accountancy Ireland asked Grant Thornton’s Paul McCann and Deloitte’s Brendan Jennings to share their learnings and advice for practices and businesses considering a merger or acquisition as a means of growth. Paul McCann, Managing Partner, Grant Thornton In September, Grant Thornton’s merger with RSM Farrell Grant Sparks received the Competition and Consumer Protection Commission’s seal of approval. The deal strengthened Grant Thornton’s position as number five in the Irish accountancy market with a workforce of 800 and plans to recruit a further 200 by 2017. Paul McCann, Managing Partner at Grant Thornton, discusses the thought process behind the merger, the potential benefits, and the risks associated with such a move. “We are an ambitious firm. We want to be Ireland’s leading financial and business advisors and we had to consider how to grow our business to achieve that. M&A had worked for us in the past and we believed that the right strategy was to focus our attention on finding the right firm. To grow our business we need the right people, there is a war for talent in our industry and merging with the right firm would automatically add to our existing pool of experts as well as delivering economies of scale for the firm. We were also focused on building niche areas of expertise that would have strong market position. “RSM Farrell Grant Sparks had a really good reputation; we felt they were a lot like Grant Thornton in terms of their culture and entrepreneurial spirit. But they also had good niche areas of expertise and had a similar sectoral focus as us – for example, in the  areas  of technology, media and entertainment. “This   is   the   biggest   merger  Grant Thornton has done in this market and the bigger the merger, the greater the number of potential issues that can arise in the process. However, it was a very relaxed environment during the negotiations and the goodwill on both sides overcame any obstacle. One of the key risks was the negotiations being leaked both internally and externally, and there was the risk of taking our eye off the ball as the process went on. To mitigate these risks, we put dedicated teams in place on both sides to ensure all aspects  of  the  merger  were managed correctly. “In my view, there are a number of critical elements for success. There is the need to physically bring the firms together and cross-pollinate our people. It’s only by doing this that we can merge the entities both physically and mentally, ensuring  that everyone feels part of the one firm. It’s also important to allow all of our people sufficient time to integrate and adapt to working together as one firm. And the final piece is trying to bring out the best from each side. “I think  there  is  an  appetite  in  the profession for more firms to merge. I think many firms would like to, but there are obstacles in their way,  such  as  a  lack  of common philosophy. Sometimes, both firms’ cultures are too far apart to combine as one firm.” Brendan Jennings, Managing Partner, Deloitte Deloitte has made a number of acquisitions in the last number of years commencing with the 2010 acquisition of Curach Consulting. This strategy was accelerated in 2014 with the acquisition of KavanaghFennell and the merger with Deloitte Leyton. In July, Deloitte acquired System Dynamics, one of Ireland’s biggest technology consulting businesses. Brendan Jennings, Managing Partner at Deloitte, shares his insights and experience. “Our acquisition strategy is very much aligned to our overall 2020 business strategy here in Ireland and indeed the global Deloitte strategy, both of which outline our ambition to grow our business both organically and inorganically. Therefore, acquisitions will continue to be an area of focus for us over the coming years and, as a multidisciplinary business, we are interested in opportunities that are adjacent and complement existing service offerings, right across our business. Any future acquisition must be effective in achieving scale in the service offering. Our consistent goal at Deloitte is to be leaders in professional services, and any M&A activity must serve that purpose. “Payback is an important area in terms of the attractiveness of any acquisition opportunity – any investment must bring financial and strategic benefits. Key to ensuring these success factors is a rigorous acquisition evaluation and execution methodology. This is something that we have developed to ensure that we are fully able to determine what is of interest to us, assess the opportunity comprehensively, and make strong recommendations on not only the pursuit of the acquisition, but also the shape of it. Our methodology also enables us to execute on any opportunity in a timely manner which can be somewhat unique, given the nature of a partnership model. All of these elements, we believe, make for a more successful outcome. “We will continue to monitor the marketplace for opportunities. Ours is a broad and diverse business, and areas such as services to private businesses, cyber security, human capital, and strategy and operations, to name a few, are all areas that we are open to investment in.  As leaders in our profession, we continually monitor how we can grow and enhance our business, and so availing of the right acquisition opportunities will continue to be a priority. There are a number of key criteria we examine: is the acquisition a strategic fit with our business? What are the risks or benefits to our brand? What is the payback period based on the deal structure? In terms of scenario planning, what are the best, worst and probable cases? Engage in rounded thinking upfront, and execute on that basis. Strong governance and project management around the acquisition are important – a rigorous assessment of the opportunity, a comprehensive commercial negotiation, a robust due diligence process covering all areas including commercial, legal and beyond, and a very defined business model are all important considerations for us in any acquisition process. “Risks that are important to examine relate to both the external and internal environments. At a macro level, how are the local and global economies expected to perform, and will this have an impact on how the acquisition performs? Talent is also an important consideration. Will key talent be happy to transfer? Critically important is an assessment on any impact on clients of our business, and of the company which may be acquired. Firms in our industry must be aware of regulatory implications given its multidisciplinary nature. For example, we are extremely mindful of audit independence requirements – knowing what questions to ask is very important. Assessing these risks and areas of consideration, and incorporating these into the aforementioned evaluation process is how best to mitigate them.  We carry out extensive scenario planning, so that we have a good feel for how these risks might impact. “It’s all about planning, communication, and ownership. Plan upfront, communicate regularly with all relevant people, do what you say you are going to do, and do it well. Involve all the necessary work streams – from HR, facilities, IT and beyond – to ensure that all relevant areas are considered, timelines are agreed,  and that responsibility has been assigned on the delivery of these tasks. Once again, it comes back to project management. Issues will always arise, and so the ability to address them quickly is what counts. One of the most important goals in all of this is to make for a positive on-boarding experience for the people joining the company. If this is good, they feel good about their new working environment. “We expect M&A activity in the accountancy profession to gather pace in the year ahead. The nature of professional services firms is that our clients need and expect a broad range of skills from their service providers. This reflects the growing complexity of their businesses and the global marketplace in which they operate in. What’s more, they expect and deserve to have a connection with their providers that serves their business on a holistic level. Against this landscape, adding complementary skills will be an important part, amongst others, in meeting these client needs.

Now mergers and acquisitions are back on the corporate agenda, executive teams need to pay close attention to integration management if a deal’s full value is to be captured, writes Dr Nicholas Ingle. For most organisations, the past eight years have centred around cash-flow and survival. Now, the tide is slowly beginning to turn and organisations in certain sectors are re-focusing on growth, expansion and succession planning. Mergers and acquisitions (M&As) are therefore back on the boardroom agenda. While M&A activity is growing steadily, failure is surprisingly common. As a large number of organisations will complete just one or two acquisitions in their lifetime, management may have limited or no experience of the M&A process. Management teams often believe that they can plan and manage the M&A process themselves but due to a lack of experience and resources, they can make poor integration decisions as a result. This causes a lot of relationships to disintegrate and acquisitions to fail. Organisations also often assume that, once the acquisition is complete, the benefits will automatically follow. This is not the case as just one third of all M&A integration projects achieve their objectives. Other typical reasons for failure include: losing key customers and talent; overestimating potential synergies; underestimating cultural differences; allocating insufficient resources and budget to the integration process; knowledge gaps, which can be driven by confidentiality issues; and failure to properly analyse market and competition reaction to the M&A. While carrying out a merger or acquisition, the running of the existing organisation can take a back seat. Management teams often choose to focus their time and energy on completing the transaction and dealing with the process of integration planning, implementation and subsequent integration problems. These issues can be stressful, complex and time-consuming for already busy executives, hence the high failure rates. Study after study has shown that much time and money is spent analysing and negotiating with targets in the pre-acquisition stage. The most important factor in successful M&A activity, however, is effective integration into the parent organisation – something that is often neglected until it’s too late. Key success factors Research has shown that 80 per cent of organisations with a properly planned, aligned and executed integration strategy ultimately achieve integration success. A clear pre- and post-M&A strategy will deliver significantly higher long-term value, while a well-executed integration process can generate a competitive advantage. To achieve a competitive advantage, organisations must develop a holistic structured approach to integration planning that provides clear goals and objectives for candidate selection, negotiation and integration. While a holistic approach is required, the pre-acquisition analysis stage typically focuses on the financial and strategic fit of the target organisation with little or no attention paid to the two issues that cause the majority of integration problems – cultural and organisational fit. That said, integration is a balancing act that occurs over the lifecycle of the M&A process. While parent organisations will want to preserve what is unique and successful about the acquired firm, they will also wish to leverage their own capabilities. To do both successfully, organisations must incorporate financial, strategic, cultural and organisational integration tasks. Aligning financial and strategic elements throughout the M&A process is critical to success but in a professional practice merger, real value will only be realised if cultural and organisational integration is included. Yet, poor cultural integration is the number one reason why M&As fail. Myriad reasons for such failures have been identified: management may not get the opportunity to analyse culture in the pre-acquisition stage; they may not have the necessary expertise in-house to complete the integration process successfully; and they simply might not want to analyse the culture. Cultural issues don’t go away, however, and in reality cultural clashes are common in the M&A process as organisations often do things in fundamentally different ways. This creates frustration and anxiety among staff while trust, which is critical to success, slowly erodes. The result is demoralisation followed by a decrease in productivity, which in turn prevents the realisation of synergies. In the worst case scenario, organisations could face an exodus of key talent from the organisation and dissatisfaction among – or loss of  – key customers. At this point, the value of the merger or acquisition is at risk. Cultural integration clearly isn’t something that can wait until after the deal is done. It needs to be at the fore of executives’ thoughts and the acquiring organisation needs to look at every aspect of its operation, assess its own culture and determine the vision for the combined organisation. In doing so, the organisation will be in a position to better identify suitable candidates and, in the due diligence process, prioritise the cultural issues that could put synergy realisation at risk. Assessment tools Organisations can choose from a broad spectrum of cultural assessment tools and techniques, which range from very simplistic checks to detailed analysis techniques. An example of a simple early-stage check is to ask your executive team and trusted advisors to use three adjectives to describe your organisation and potential target organisation’s culture. Using this technique, you can identify potential opportunities and problems quickly. As the deal progresses, determining the degree of post-acquisition integration required depends on two primary cultural variables – the level of integration required (i.e. standalone, partial, or full) and the organisational culture types being merged. The following simple organisational culture assessment will help identify the culture types being merged at an early stage: Power culture: typically autocratic and power-centred, with an emphasis on individual decision-making. This organisation is suppressive towards challenge. Power culture: typically autocratic and power-centred, with an emphasis on individual decision-making. This organisation is suppressive towards challenge. Role culture: typically bureaucratic and hierarchical with an emphasis on formal regulations and rules. This organisation values efficiency and standardised customer service. Task culture: focuses on team working and commitment. There is a degree of flexibility and employee autonomy, and this organisation fosters a creative environment. Person culture: the emphasis is on the individual, and personal development is encouraged. By categorising the organisations involved using this culture assessment matrix, management teams will be able to identify potential cultural clashes and opportunities at a glance. This information can then be used to set the integration agenda in accordance with their vision for the integration but be warned, detailed cultural analysis is critical to success. Think about technology Having a strategic IT capability can lead to a competitive advantage and a critical post-merger objective may be the smooth transition to a chosen IT platform. IT might also play a critical role in a broader range of deliverables including the successful conclusion of the merger or acquisition; the delivery of value; the realisation of synergies; and responding to changes in customers’ needs. The ongoing integration challenge for IT is to identify how much can be saved by consolidating systems, data and staff. If you are a professional firm engaged in a single merger or acquisition, pick the best system from both firms, identify any desired additional functionality and note it for implementation at a later date. Key objectives The key to M&A success is to adopt a holistic approach to integration. By creating a clear vision and strategy supported by a set of aligned strategic, financial, cultural and organisational objectives, organisations will reduce integration delivery time, realise synergies, prevent value leakage and create a competitive advantage. Dr Nicholas Ingle is CEO at SMARTT Partners, an M&A integration management consultancy.

Communicating through a merger or acquisition takes nous and tact but the following 10 steps will help guide you and your clients on the journey, writes Mary Cloonan. Consider the following scenario: your client sets a date for their business marriage to another. You work through due diligence, heads and final agreement and the signing date is subsequently set. How do you now advise your client on managing the communication of this new union to maximise the outcome for the new combined business, the staff, and referral sources, customers and clients? As good communication is essential to successful mergers and acquisitions (M&As), communication management must be considered during the preliminary stages to set the scene and help achieve the potential for positive messaging. Some businesses – technology companies in particular – often have a marketing strategy that constructs and strengthens their corporate profile with a view to enhancing their negotiation position long before suitors enter the scene. Here are 10 simple steps to help you advise your clients, or implement within your own organisation, as you work through the M&A process. Understand the context There can be a tendency to use M&A as a generic heading, rarely distinguishing between the merger and the acquisition. In reality, businesses can find themselves in a variety of scenarios as an equal or unequal partner in a merger; an acquired or acquiring party; divested from a parent group, or the parent company itself. These differing scenarios will shape both the nature and tone of the communication and how it is likely to be received. Understanding the background that led to the change is key. Was the move hostile or welcomed? Was it voluntary or enforced by a regulatory body? You should also assess the level of surprise about the merger or acquisition. The better you understand the context and circumstances, the easier it will be to segment your audience and deliver tailored messages that meet their needs. Plan ahead Before you begin to devise a communication plan, listen. This is a critical exercise that will help you understand the issues, opportunities and sensitivities. Your communication plan should cover the ‘before’, ‘during’ and ‘after’ elements of the change process, but this is often easier said than done. Factors such as employees’ terms of employment, industry regulations and stock market listings could potentially influence your timescales and shape how and when you start communicating. Identify your audiences Segmenting your audience is important, as it will allow you to deliver a very tailored messaged based on your audiences’ requirements. Audiences of each business frequently fall into the following categories: staff; customers of both businesses; prospects and referral sources; regulatory bodies; and media. Further segmentation of the customer base is often required. Key customers sometimes require one-to-one meetings with their main contact from the business depending on the circumstances. It is very important to review regulatory notice requirements as this can impact on timing. Leaders should also carefully consider the implications for staff. Employee communication should be undertaken in partnership with Human Resources to ensure staff are adequately protected and managed in line with their terms of employment. If an organisation manages employee communication well, all those affected by the news will understand why the transaction happened and be in a better position to reassure customers where necessary. Create your plan Although things can always change right up until the last minute, a detailed plan outlining how information will be cascaded to your audiences, and when, will allow you to minimise speculation, misunderstanding and the inevitable fear of change. Understanding the strategic and political landscape is the first thing to address, so there is a clear context on which to build your plan. Circulating the plan to relevant stakeholders will also ensure that all members of the leadership team deliver a consistent message. There is sometimes a concern about who needs to communicate with whom, particularly when the merging businesses have mutual customers. A prudent approach is to over rather than under-communicate, particularly if sensitivities are involved. Manage the message For every element of communication, you should determine: what your objectives are; when in the process it is being released; how it could be received; and how you would like your audience to react. Develop strong relationships with front-line staff and sales teams in both organisations as doing so will facilitate communication across groups and give you a crucial insight into the perceptions and behaviors of your audiences. Messages can be both overestimated and underestimated, so gauge your organisation’s relevance early in the process. For example, organisations sometimes overestimate their importance to customers or clients. Over-the-top communication supported by expensive advertising or profiling can subsequently do more harm than good to a brand. Choose brand advocates The person chosen to front all communication should demonstrate strong and confident leadership and a clear vision for the future. It is important that you pick the right people to communicate the message, and media training is advised – even for the most accomplished communicators. Create internal advocates Successful mergers and acquisitions require buy-in and support from staff and stakeholders. To earn that support, explain the reasons for the merger and what it means for the future of their role and the organisation as a whole. Develop a set of clear messages for use from day one, and tailor them to each group based on their needs. Once you start sharing information, it is important to remain consistent throughout the process. Consistency will ensure your position is made clear and will build confidence, whereas any hint of confusion can lead to false assumptions of chaos and secrecy. It is also important to communicate even when there is little or no progress to report – doing so will prevent the rumor mill taking the lead. Coordinate the message Regardless of who takes the lead in the merger process, it is important that both organisations work together to plan and deliver all communications. Timing and messaging must be coordinated and care taken to ensure that overlapping audiences receive information in the right way – don’t double up without knowing it and don’t let anything slip through the gaps. Think beyond the merger Reinforce the vision for the organisation and be sure that any changes to the brand and messaging arising from the merger or acquisition have been fully adopted throughout the new entity. The communication plan should run beyond the merger or acquisition date, and this gives the organisation the opportunity to reassure customers and other stakeholders that it is either business as usual, or things have changed for the better. Build two-way, social communication channels No single factor leads to a successful communication experience in M&A circumstances. The above points should be taken into account when developing your plans but there are two further elements that should be integrated. Firstly, build social interaction into the plan by creating situations where teams are given time to get to know each other. This takes away the fear of the unknown and builds trust. Secondly, communication shouldn’t come solely from the top down. To be effective, communication should also come from the bottom up, giving people the opportunity to voice their thoughts, hopes and concerns throughout the process. Mary Cloonan is a freelance marketing professional and Principal at Marketing Clever.