So far this year, corporations have sold or spun off $1.6 trillion worth of subsidiaries and business lines according to the Wall Street Journal. The pressure to make these deals work is putting financial planning and analysis teams on the spot.
The work FP&A is doing in the corporate spin-off realm is a natural extension of its work in capital allocation and investment decisions. FP&A professionals often are the ones making, reviewing and recommending business case scenarios for potential investments. “What we see work best, is that [the group that makes those recommendations] resides in FP&A,” said Jason Logman, principal, EPM Transformation Practice, at The Hackett Group. “There’s a capital group that gets involved in each project above a certain dollar and materiality threshold. They’re typically responsible for managing that portfolio.”
AFP’s guide, Making Capital Allocation Decisions, the Role of FP&A, examines the role FP&A plays in helping management make decisions about investments. The same is true for divestitures and business separation. FP&A is uniquely positioned to run the analysis and model the future performance of the independent companies, forecasting share price, capital markets access and using business intelligence tools to analyze the new entities’ ability to compete in the business environment.
As companies seek to increase shareholder value, the role of FP&A as a strategic advisor to management continues to expand, from investment decisions to decisions about splitting up the company into parts to enhance shareholder value.
More FP&A resources can be found at http://www.afponline.org/fpaguides.