Over the years, the accountancy profession in Malta has managed to develop and transform itself in order to adapt to the diverse roles it has been called upon to serve. This was most evident in recent years characterised by growing pressures from increased regulation and new accounting standards, which led to increased levels of specialisation within the practising firms.

Even in business, the Chief Financial Officer’s role has had to change to meet new expectations. As a result of the ailing economic situation in Europe, local businesses today are facing new challenges and risks, mainly reflected in increased competition. As one of the company’s key resources, the accountant has had to shed his old stereotype and deploy most of his resources assisting the business to achieve growth in revenue and/or earnings.

In the past, the CFO’s main preoccupation was with accounting processes and control, spending most of his time analysing historic accounting information and reporting. These functions are still as important today but, thanks to the advances in technology and the high standards of technical competence and intellectual ability of young comers to the profession, most of the work is delegated, leaving the CFO enough time to assist the Chief Executive Officer in developing the business in the face of a challenging business environment.

Rather than an inward-looking and highly-technical approach, the CFO needs to engage primarily as a strategist, analysing the external influences on the business and formulating recommendations for growth. The budgeting process is a basic example of such work, but the breadth and depth of the work involved is normally far beyond that which would be sufficient for budgeting purposes.

The CFO can contribute, for instance, by analysing the key elements of competitor activity and thereby identifying the source of their competitive advantage. By focusing on the competition, the CFO can identify the necessary changes in the company’s strategy and operations. Then he/she will deploy his/her skills in change management, by project-leading the necessary reforms and recommending policy changes.

The CFO can and should also assist in evaluating alternative business opportunities and strategic options. Business in Malta is largely through small and medium-sized family-owned entities, resulting in a high level of fragmentation and excessive competition. At the same time, most local businesses are too small to aspire to have scale economies that would help them compete profitably against foreign competition, let alone being able to establish a viable presence in foreign markets. This could be a golden opportunity for CFOs to deploy their analytical skills and in-depth knowledge of their business to promote an M&A strategy and identify prospective targets.

There is no doubt that consolidation is badly needed in all sectors of local business. This is what the CEO of the Middlesea Group Alfredo Muñoz Perez said recently: “Competition is very positive as it keeps market players on their toes. But the insurance sector has too many players at the moment and it is not sustainable, given the market size. Something has to happen. I predict that we will see mergers and acquisitions.”

In other sectors, family-owned businesses have either merged or forged strategic alliances in the retail, wines and importation business, to name only a few recent examples.

There is no doubt that consolidation is badly needed in all sectors of local business

In seeking opportunities for growth, M&A should always be under consideration as one of the company’s strategic options. The CFO’s role is important in the analysis of prospective targets and in the preparation of the business case for a particular transaction. The economic arguments need to be clearly articulated and communicated effectively and assertively in an objective way. This is very much within the professional competence of the CFO, who would normally also enjoy a certain gravitas within the organisation to help him convey the message to the board and the shareholders. Yet, despite significant economic benefits (which are sometimes immediately apparent, even without the need of much research or analysis) there are significant hurdles to industry consolidation. Initial resistance to merge or sell a business is prevalent and, apart from the normal resistance to change, this could also be due to personal reasons of the family owners or of the senior management who may feel that their job is at risk.

In such a negative environment, it is clear that for an M&A recommendation to be approved, there has to be a solid business case built on reliable research and rigorous analysis, with a clear identification of risks and a proper sensitivity analysis. In addition, the communication must be convincing and authoritative, tempered by the right balance, objectivity and sensitivity to the feelings and aspirations of the family owners and their loyal managers. This is where the CFO could bring to bear his technical skills and professionalism for the benefit of his company.

This is also where the CFO can excel in adding real value to the business and, indirectly, to the local economy.

Alfred Lupi has occupied CFO and other senior positions in the beverage industry, the national airline and the retail business.