A Year of Challenge and Change
An HSBC Industry View
by Sacha Deal, Global Sector Head - Technology, Media and Telecommunication, Global Liquidity & Cash Management, HSBC Bank plc
2016 was a year that will stick in the minds of many people for different reasons, and treasurers and finance managers of technology, media and telecoms companies are no exception. The second half of the year, particularly the last quarter, brought major organisational upheavals for many, with a number of high profile mergers, acquisitions and spin offs, particularly in the technology sector. For example, during the first year since the division of Hewlett-Packard in November 2015 into Hewlett Packard Enterprises (HPE) and HP Inc., HPE has been busy in M&A. In May 2016, it sold its Enterprise Services division to competitor Computer Sciences Corporation, and announced the acquisition of Silicon Graphics International only three months later, completed in November 2016. In September 2016, HPE announced a ‘spin-merge’ with Micro Focus International: Micro Focus acquires HPE’s non-core software, and HPE shareholders owns 50.1% of the merged company, which will continue to be known as HPE.
M&A for depth and diversification
The telecoms sector is also experiencing industry consolidation and restructuring albeit to a lesser degree. In particular, we are seeing mobile operators acquiring and forming partnerships with content providers, such as AT&T’s announcement of a deal to acquire Time Warner in October 2016, as mobile networks and the media that is exchanged across them become more inextricably linked. As another example, Verizon made a variety of acquisitions during the second half of 2016, including Yahoo!’s operating business in July, fleet telematics system company Fleetmatics in August, and mapping startup SocialRadar in November. Furthermore, Verizon’s purchase of Sensity, an LED sensor startup in September, is an interesting example of the way in which telecom companies are seeking to take advantage of innovations in areas such as the Internet of Things to drive the communication models of the future.
Treasury has a major role to play in M&A and corporate spin offs, not least in ensuring that new and merged entities have the bank accounts and internal financial infrastructure to conduct business, appropriate financing and the ability to manage liquidity and risk. These often need to be achieved in short timeframes with considerable organisational barriers and uncertainties. At the same time, the treasury organisation itself, whether acquiring new responsibilities and staff, splitting out or establishing for the first time has considerable staffing, systems, policies and procedural issues to contend with.
A year of challenge and change
It is not only treasurers and finance managers of companies engaged in M&A that are experiencing challenge and change. Regulatory change and market volatility at both global and local levels continue to prompt treasurers to review their policies, processes, controls and reporting. Treasurers globally are dealing with the consequences of their banks’ adoption of Basel III and the impact of changes such as IRS 385. At the same time, they are also having to revise their strategies in countries such as China where opportunities to repatriate RMB have become more restricted in recent months, and the value of the currency, particularly against USD has fallen. Several other emerging markets currencies have depreciated against the USD in 2016, including the peso, rupee, ringgit and dong.
Devaluation of both hard currencies, such as GBP, and emerging currencies such as EGP are also forcing a review of hedging policies and strategies.