The challenge
In 2020, AbbVie acquired Allergan in a US$63bn transaction and the company promptly wanted to achieve the following objectives across both AbbVie and Allergan:
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Visibility and control of cash.
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Consolidation of cash at a country level using a single banking partner.
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Integration of country level cash into AbbVie’s consolidated cash pool.
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Investment of consolidated cash by AbbVie’s in-house bank.
Integrating the businesses was critical to overcome the following challenges, typical of acquisitions of this magnitude.
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Fragmented cash across both businesses.
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Lack of central visibility across both businesses.
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De-centralised investment strategy.
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Different systems and ERP’s used across both businesses.
The solution
The solution that best addressed the company’s challenges entailed creating and integrating a multi-bank, multi-currency notional pool structure. This allowed consolidating cash across banks, facilitated by operational tools and reporting that enables effective cash flow forecasting, cash pool status reporting and ease of administration. Automation and reporting were critical to successfully manage centralised investment of funds, considering the liquidity needs across all cash pool participants.
“This effective solution required a deep understanding of participating markets, customer and business dynamics across both Allergan and legacy AbbVie including funding requirements, cash flow cycles and our investment policies,” says Cindy Lee, Regional Treasurer JAPAC.
Best practice and innovation
AbbVie’s critical success factors in establishing the pooling structure were met by HSBC in a variety of ways. These included:
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Deep experience in working with clients that have acquired, separated or merged businesses.
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A portfolio of innovative solutions that are quick to implement but operationally stable and include the required internal controls and reporting.
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Experience in relevant regulations and market dynamics, especially in complex markets like China.
HSBC’s solution was developed based on the understanding of market regulations, yields and other dynamics including AbbVie’s business and cash flows across all relevant currencies.
The solution entails just-in-time funding from the entities to the regional cash pool via extended intra-day limits that go well into late hours ensuring maximum value for the currency.
“HSBC’s solution supports our desired objectives of centralising and optimising our liquidity position across Asia Pacific and the world. In the current interest rate environment, this is especially valuable,” says Lee.
Key benefits
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Process efficiencies.
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Increased automation.
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Risk mitigated.
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Improved visibility.
The solution delivers full visibility to liquidity and consolidated cash using a combination of zero balance and target balance in-country accounts (with intra-day limits in store). This consolidation reduces global liquidity risk, enables centralised investment of funds or re-deployment of cash within the group as required.
Centralised investment grants access to greater investment options, higher yields and simplifies compliance administration. The solution with its same day value of funds integrates into these advantages.
