Yann Umbricht, Partner and Treasury UK Leader, PwC:

The treasury has a major role to play when a company decides to conduct any M&A activity and this begins even before any transaction is announced. The treasury has a responsibility to understand the strategy of the organisation they operate within and be aware if M&As are part of this. In doing this, treasury will be able to begin planning in advance of any M&A activity allowing it to be in the best position as and when the company decide to make a transaction.

Areas which the treasury can begin to plan for include: being ready to raise funds when the need arises, ensuring that the appropriate documentation is in place ahead of time and also understanding the legal, tax and regulatory issues in countries which the organisation is looking to expand, which will allow them to highlight and address any issues up front. In being prepared and having this information in place a treasury can add value through advising on the costing of an M&A, by providing information on anything which can affect the price of the transaction.

In addition, the value which the treasury can add when conducting an M&A means that it is vitally important that it is involved from day one of the process. This is because the treasury is able to identify important financial risks, such as foreign currency volatility, earlier than other areas of the organisation; they will then be able to manage these to ensure that the risk is mitigated. In fact, we have seen examples of where the treasury’s involvement in an M&A has prevented the transaction from collapsing, due to their ability to highlight these risks.

It is worth noting that no M&A is the same and the role of the treasury will vary depending on the type of transaction, the size of the companies involved, their location and many other variables. However there are a number of areas which a treasury needs to focus on during any M&A. These include:

• Deciding how the acquisition will be funded and analysing how this will impact the organisation’s own funding arrangements.
• Assessing the financial position of the target company and seeing if its debts should be refinanced.
• Evaluating how cash can be extracted from the target company and highlighting any trapped cash issues.
• Checking if there are any activities which the target company is involved in which would be unfamiliar to the organisation. For example, the management of foreign currencies.
• Identifying any risks which the organisation will be exposing themselves to through the M&A and finding methods to mitigate these.
• Checking if there are any potential synergies which the treasury can take advantage of through the M&A. For example, centralising treasury operations and upgrading legacy or implementing new technology.

The key advice I give regarding M&As is to ensure that the treasury’s day-to-day operations are streamlined, efficient and automated. Because when an organisation decides upon M&A activity the treasury is posed with a lot of additional work. However, the day-to-day operations cannot be neglected.

Peter Charles, Director, Peter Charles Limited:

A M&A is not necessarily a destabilising time for a company. Companies I work with acquire companies as a method of acquiring customers. Once a year or so they perform a bolt-on acquisition. As a growth strategy it is as effective as a sales force. In that situation an acquisition is not a cause of instability. They are experts at absorbing the bolt-on and have the people, strategies and procedures in place – including treasury – to make that happen. Cash flow is helped by the negotiation of deferred terms to the vendor and the acquisition will be financed through internal resources. The treasury activity is organised around those objectives.

Some treasury teams are hands-off with the operating divisions: a group function may be relying on their relationships with divisional finance directors. They may work on the strategic and financing aspects of an M&A: in contrast others may need to be plugged in to the day-to-day business to provide practical help to the business during a takeover.

We all know the saying ‘cash is king’. But for many companies that is only true when cash really matters, when it is in short supply or great demand. In an M&A situation – where the deal may be significant even if it isn’t transformational – cash is likely to be king. To ensure a smooth transition, treasury needs to be in the loop, plugged into the financing with a tight grip on cash because that is one key way to avoid instability, particularly where the financing dynamics of the two businesses differ. This means treasury needs to be told about the M&A and told in plenty of time.

When the deal is done, those treasury departments which are there on the ground can be an effective force in integration. If they have clear systems and processes in operation they can politely insist soon after the deal that this is the way it is going to be. If the target company doesn’t work in a similar way then clearly there is work to be done to introduce those processes. This should be done quickly to avoid instability and uncertainty.

Many businesses have banks accounts which serve a limited purpose or a specific area, and many have pockets of cash in various places. In terms of integration, good treasury teams I have encountered will make sure that they get hold of all of the bank accounts. After a merger or takeover, it is sensible for treasury to discover and control its cash and bank accounts at once. Having such a grip on the cash is one major antidote to any instability.

Michael Mueller, Head of Global Cash Management, Barclays:

Change along this order of magnitude is never easy. Treasury often takes centre stage and the function can quickly turn from financial to technological as it relates to ensuring integrated systems are in place to provide an accurate and aggregate cash position.

Assimilating treasury personnel from both companies is key and not enough can be said on the importance of relationship building in this space. Investing the time in strategy sessions, idea generation and team building is essential to identifying talent from both companies that will lead the transformation process. Each firm will have its own culture and strong leadership is needed to empower the new treasury organisation to leverage this time of change to drive innovation.

The creation of a joint steering committee to manage the transition process is of paramount importance. A project manager should be assigned to lead a cross-functional team (treasury, legal, cash management, compliance, IT, HR) in the creation and execution of a ‘terms of reference’ document that lays out what is in scope for the transformation of treasury, participants and roles and responsibilities. Clear and frequent communication to staff is essential to report progress and invite ideas, through innovation challenges, when roadblocks are identified.

The transition plan should reflect a prioritisation of tasks and those with dependencies across systems and processes. Executing in a phased approach mitigates risk by delivering results in “bite-size chunks” rather than trying to “boil the ocean”. The project should have a beginning and an end date and focus on current and future state:

Current State (based on a joint review of the treasury function at both organisations)

• What are the financials? What is my current cash position? What is the treasury policy?
• Which banks are in the revolving credit facility (RCF)?
• What systems are in use (electronic banking, TMS, ERP)?
• How many bank accounts are in place? What is the account structure, globally?
• What global transaction banking contracts are held by each bank and who are the signers?
• What pricing is in place for all global transaction banking services?
• What third-party providers are part of the transaction flows (SWIFT, service bureau)?

Future State (based on a “best of breed” from both treasury functions)

• Visibility to cash through online reporting from all accounts.
• Revision of treasury policy.
• Integration and upgrading of systems.
• Rationalisation and restructuring of bank accounts and relationships.
• Potential change in the geographical location of treasury if a shared service centre (SSC) is part of the future strategy.
• New officers, signers and updating of bank mandates.

Once all key decisions have been made, treasury should engage their banking partners to review the new structure. Bankers have a unique role as trusted advisors based on their experience working with other clients who have undergone a transformation of treasury. The success of the transition is based on four pillars: transparency, accountability, communication and commitment. Staying focused on continuous improvement is key for long-term success.