Treasury Today Country Profiles in association with Citi

Mid-market treasuries: punching above their weight

Businessman wearing a suit and red boxing gloves

Nimble and increasingly keen to adopt the sophisticated cash management practices of their larger cousins, mid-market treasuries face specific challenges, from overcoming resource limitations to competing with better-rated companies for credit.

“Mid-sized firms have the same needs and dynamics as larger scale companies,” says Carole Berndt, Head of Global Treasury Solutions, EMEA, Bank of America Merrill Lynch “But the demands on treasurers can sometimes be even more intense. “Mid-sized companies do not have the luxury of a large organisation that could mask operating inefficiencies, or the big budgets that have traditionally bought more sophisticated tools.”

Areas like cash flow and cash visibility are more critical for mid-market treasuries, which do not usually have the same credit lines as larger corporates. “To get visibility, mid-market companies tend to centralise operations,” explains Marc Espagnon, Head of Sales Cash Management at BNP Paribas. “One popular first step is physical cash pooling. With the cash in one place, treasurers can more easily monitor and control it. There are different levels of centralisation, but pooling is very important.

“For years, treasurers have wanted to impose this on subsidiaries, but often they were not powerful enough. The crisis and the technology have given them that authority and capabilities, and it is very much a trend we are seeing currently.”

Norbert Müller, Head of Cash Management Sales Germany, Global Transaction Banking, UniCredit, agrees, adding, “Other techniques previously only used by big companies, like payment factories, are also being used. The crisis has led more companies to establish a central working capital management function within the treasury department. The aim is to gain a good overview, and achieve transparency in a group-wide sense.”

Mid-market treasurers operate more flexibly than larger treasuries. “These treasury departments might only have two or three staff. That means there is a short chain of command, enabling treasurers to be nimble and decisive,” continues Berndt. “They can change policies more quickly without being bogged down by corporate constraints – but that is clearly balanced with the challenges posed by working in companies with fewer resources to spend on treasury.”

SEB’s Erik Seifert sees a further advantage. “Mid-market treasurers can be very close to the rest of the business – they know the firm very well, and that extends all the way up to CFOs, who can know the firm better than CFOs of the largest firms. However, by necessity these treasurers are likely to be generalists – they just do not have the capacity to hire many specialists, so there is clearly a downside too.”

What is a mid-market treasury?

Definitions vary. UniCredit puts companies with an annual turnover of between €500m and €1 billion, and between three and five treasurers, in the ‘mid-market’ bracket. BNP Paribas has a wider definition, calling firms with between €100m and several billion euros ‘large mid-caps’.

Meanwhile, SEB sees a difficulty in judging firms in this way. “We might call a firm with turnover of between €100m and €1 billion ‘mid-market’ usually,” says Erik Seifert, Head of GTS Corporate Sweden, “but in terms of ‘mid-market treasury’, we need to look larger – say, €500m to €1.5 billion – because firms of around €100m very rarely have dedicated treasurers and fully staffed treasuries.”

Technology provider Wall Street Systems has a different point of view altogether. “The mid-market is no longer defined by size,” says Paul Wheeler, Managing Director, Corporate Treasury. “It is defined by traits. Those traits seem to be a predominant liquidity focus, some increase in interest rate risk and value at risk, trading risk, portfolio risk. That is accompanied by a trend towards quick implementation, but with the ability to evolve over time.”

Investment in technology needed

Certain techniques used by larger corporates are particularly adaptable, and can be scaled down for use by mid-market firms. Netting, and a more sophisticated approach to cash flow forecasting, for example, are gaining more widespread use. However, shared services, treasury management systems (TMS) to support hedging programmes and Value at Risk evaluation, for example, can require almost the level of investment that far larger companies would put in – stretching the resources of even the most well-funded mid-market firm.

“Mid-sized companies face challenges to get a broader view of their treasury operations internationally,” explains Martin Bellin, Managing Director of technology company Bellin. “If they have already seen treasury as a valuable area, they have probably built some kind of central treasury already, but most of them do not have a complete overview of their group-wide treasury operations.

“These firms are trying to collect worldwide balances, FX exposure, interest risk, and so on, on a regular basis. Based on these requirements, they are looking for systems which can handle international networks – platforms where everyone can collect all the available information conveniently, from different locations, and more important, which can be used by the subsidiaries for their local benefit.”

High-end solutions more common

One of Bellin’s clients is utilities provider BWT Group. Head of Group Finance Matthias Ainz explains how they use the technology: “One challenge recently has been to roll out our software to all 50 or so of our subsidiaries. As the Bellin tool we use is web-based, this was very easy, and as all our companies now have access to the system, we get a better overall picture, with cash reporting, FX, loans, and so on. This technology is very good for our scale of company.”

Wall Street Systems agrees treasurers are looking to move from multiple, regional platforms to one integrated global solution. “Mid- and low-end treasuries are looking towards products once considered solely as high-end requirements,” says Paul Wheeler, Managing Director, Corporate Treasury. “We are seeing more focus around liquidity management, portfolio planning and a little bit of risk and Value at Risk, too. Treasurers want transparency of data, high visibility of information and straight through processing.”

Although mid-market treasuries are increasing the sophistication of their systems, their budgets may not be increasing in line with those demands. “Treasurers have increasingly high aspirations,” continues Wheeler, “but are becoming very careful about how they manage those aspirations and implement new systems. Now we offer solutions which meet immediate needs and can be implemented in a matter of days, but have flexibility over the long term.

“In the past, a treasurer might buy a huge system with every tool they might ever need. Now, they can discuss potential changes they expect to see over the next five to ten years and the system can be updated and adapted when required. That removes the risk that the treasurer will pay up front for a system which may never be used to full effect.”

The Head of Treasury of GFKL Financial Services AG, Dr. Markus Fischer, recognises the challenge of managing aspirations in buying technology. Following a private equity takeover, the company is aiming to integrate its systems and software. “Backed by the support and funding of our owner we are in the position to realise this project. It is huge, covering areas including book-keeping and management reporting. The treasury will be strongly involved through the whole process,” he told Treasury Today.

“In principle, we had a great opportunity to design everything according to our requirements – not having the usual restrictions as everything was starting afresh. We assessed the balance between flexibility and standardisation. Although about 85% of the procedures are automated, boosting efficiency and saving money, room is left for future growth. We have planned ahead since we need flexibility in case of acquiring a new firm, for example.”

Another historical difficulty for many mid-market treasuries has been a lack of organisational and technical support to implement new systems and keep them running and up to date. Vendor hosting offers a solution that has proved attractive for a number of companies. Under this model, the physical hardware is under the control of the system provider, which then maintains and updates the system as required. Called SaaS – ‘software as a service’ – this offers organisational and price benefits.

However, not all firms take the vendor-hosting option. Thomas Dippold, CFO, SEMIKRON, told Treasury Today “We use Bellin’s TM5 – it is a very user friendly system, and we are very satisfied with the service. However, we host the system ourselves – as a company policy, we are reluctant to give away any control. It is a security policy, as well.”

Nervertheless, many mid-market firms have yet to take the plunge with more complex systems, says Martin Bellin. “We can expect this to change very gradually across Europe. These companies tend to rely on spread sheets, and generally have nobody responsible for such implementation. We are here to help them with large projects – even working out with them how to set up their individual treasury from the very start.”


Although many mid-market treasuries may be adopting higher-end practices and technologies, challenges remain. The onset of SEPA – the end-date for the payments system is expected to be around the end of 2012 – is having a significant impact on mid-market treasuries, both positively and negatively.

“The big issue with SEPA is for midcaps to be sure the return on investment will be good,” says BNP Paribas’ Marc Espagnon. “Until treasurers know what is going to happen, they are often reluctant to make a move. If SEPA will be passed by the European Parliament, with a further 12 months to the end date for SCT and 24 months for SDD, the trend will accelerate. If so, 2012 will be a busy year for corporates migrating.

“Migrating to SEPA makes sense mainly if you have cross-border operations in Europe. However, the main part of payments in Europe are domestic ones. For mid-market companies focused on domestic payments, the move to SEPA will require investment, and the global cost of transfers will not even fall.”

That is a challenge Thomas Dippold is facing this year. “We aim to make our payments with SEPA,” he told Treasury Today, “but currently we cannot. The problem is our ERP system, which we need to update this year.”

Implementing SEPA has its benefits too, however. Carole Berndt, Bank of America Merill Lynch says “SEPA is a great vehicle for mid-market treasurers to have more comprehensive and sophisticated banking capabilities. It reduces the corporates’ cost of banking and gets them to a level of standardisation in a very cost-effective way. I think this sized company, and similarly sized subsidiaries of larger companies, are much more willing to discuss SEPA than the larger corporates. They are making that decision much more quickly, too – partly because they might be migrating, say, 50 accounts, rather than 5,000.”

Regulation and funding

In terms of looming credit problems, Basel III is close to the top of the list for mid-market treasuries. Requiring many banks to raise capital levels on lending, Basel III may well make banks’ lending criteria stricter – and if that happens, mid-market firms will be in the firing line.

“Mid-market companies could be among the hardest hit by Basel III,” warns Thomas Dippold. “It is a question of banks increasing prices, and because credit ratings will become more important, the big companies with the best ratings will be in the best position. German companies in particular have traditionally had low equity. They take a lot of money from banks, and so could be affected. That said, SEMIKRON is in a very comfortable position, with no debts, and we do not expect to access any credit in 2011, so it is not a direct concern for us.”

Bank of America Merrill Lynch’s Carole Berndt does not see the issue in quite the same light, however. “At the end of the day, decisions around the allocation of capital will be driven more by strength of relationships than by company size.”

Knowing your bank – and making sure they know you

Those relationships with banks have come under the spotlight thanks to the financial crisis, and will continue to be cultivated by mid-market treasuries. However, strong relationships cannot be created overnight. “Before the crisis, companies were more willing to move between banks, and focus on price,” explains Berndt, “but the market players have matured since then. Now, they recognise the importance of building strong relationships before a crisis strikes, making it easier for their banks to support them through the tough times. Openness and transparency are key to these partnerships.”

This position is echoed by BNP Paribas’ Marc Espagnon: “Cash management is a very sticky business. You cannot just get up and move in response to price rises so it is important to have strong, long term relationships with several core banks.”

Matthias Ainz, of BWT Group, points out that partnerships work in both directions. “During the financial crisis, not all of our core banks were flexible,” he told Treasury Today. “One or two of them wanted additional securities, unilaterally raised fees overnight or cancelled facilities that were not being used at that very moment, even though our credit rating had not been changed. They did not communicate effectively with us at all. Instead of paying higher fees, we moved to new core banks. Those [previous] banks now want us to return to using them, but we are looking for a long-term relationship, with banks we know we can work with in tough times as well as good ones.”

When moving into more sophisticated areas – as mid-market firms are clearly doing – bank relationships can also be used to provide advice and support which might not be affordable from other sources. “In areas like trade finance, for example, the largest companies have enormous expertise, and specialists work with or in the treasury department,” explains SEB’s Erik Seifert.

“Mid-market firms have less experience in the field, and so it is the job of their partner banks to support them. For that to work effectively, banks need to gain an in depth understanding of the company, their business, processes and priorities. This type of partnership takes a long time to build.”

As mid-market treasuries become more sophisticated, long-term partnerships will be more important than ever.