Maximising Value in Technology, Media and Telecommunications M&A: Involve Your Treasury and Transaction Bank
By Sacha Deal, Global Sector Head and Vivek Anand, Regional Sales Sector Head, Asia Pacific – Technology, Media and Telecommunication, Global Liquidity and Cash Management, HSBC
The rapid growth in M&A activity across the technology, media and telecommunication (TMT) industry brings with it material post-merger activities that are time consuming, often cumbersome and involve multiple stakeholders. Nevertheless, although the integration phase of a deal seldom grabs headlines, it is a primary factor in determining the success, or otherwise, of the deal’s outcome. Sacha Deal, Global Sector Head and Vivek Anand, Regional Sales Sector Head, Asia Pacific – Technology, Media and Telecommunication, Global Liquidity and Cash Management at HSBC explain how the early involvement of a corporation’s treasury and cash management bank can have a highly positive effect on the integration phase and therefore also on the speed at which value is unlocked by the M&A deal as a whole.
M&A deal teams are traditionally kept small for a variety of reasons and the treasury function may not be involved until a deal is well advanced. The challenge with this approach is that it is likely that those who are involved in M&A discussions may have limited understanding of the treasury and cash management implications of the transaction.
As a result, once treasury is engaged, it often finds itself in a fire fighting situation to ensure rationalisation of systems and processes, bank accounts and interfaces. For example, conflicting Enterprise Resource Planning (ERP) and treasury systems can result in unnecessary duplication of effort and personnel, plus the cost of missed opportunities for automation and process improvement.
Involving treasury as early as possible in M&A discussions can help to minimise these risks. While other members of the M&A team can focus on strategic considerations, treasury can focus on the practical details in order to deliver the smoothest possible operational transition.
Furthermore, apart from day to day matters, treasury is also best placed to spot other financial risks, such as hidden liabilities on hedging transactions .
Whilst involving treasury early in the M&A process can improve the operational transition, the degree of improvement will also depend on the empowerment of treasury and their collaboration with their transaction banking partner. In some sectors, such as Natural Resources and Utilities, M&A activity is almost a way of life for many treasuries – so they have a legacy of experience of the transition best practices. This experience isn’t as prevalent for all TMT treasuries. The recent growth in convergence across the TMT sector creates additional complexities given acquisition of new business models and sector dynamics.
A telecoms treasury will have a deep understanding of the likely financial processes and structures of another telecoms company, but perhaps not of a fintech or content provider. For instance, working capital drivers such as terms of trade and metrics such as days payable and days sales outstanding (DPO and DSO) may be entirely different.
Another recent trend in TMT M&A has been an increase in cross-border activity. The treasury of a European TMT company may have a strong grasp of the issues facing a European business, but what happens if the company starts acquiring assets in completely unfamiliar countries in Asia, each with their own particular regulation and business practices?
An experienced transaction bank can provide expertise in support of corporate treasury in the M&A process leveraging its trans-industry and global expertise. Detailed working knowledge of typical financial processes, banking solutions, working capital cycles and local nuances of doing business in multiple jurisdictions can provide critical insight.
In some situations a suitable bank can play a crucial role in keeping vital information flowing between the target and acquirer’s treasury. Situations can and do arise where Chinese walls between the two organisations, such as in relation to physical accounts that form part of the acquisition, can cause virtual stasis. A trusted bank can act as a valuable intermediary here by obtaining dispensation from the target to share information with the acquirer and ensure business-as-usual processes can continue on the day the transaction closes.
An innovative transaction bank will take this intermediary role a step further by organising workshops with the treasurers of both target and acquirer. This can be invaluable in highlighting key issues to be addressed upfront as integration planning develops.
Working capital and liquidity
So how can treasury add value to the M&A process before a deal is even signed? One of the most fundamental considerations is working capital. Will sufficient working capital be available to the right entity and in the right location? If so, are there any obstacles such as local regulation that might impede dealing success?
Cash forecasting is critical here and should initially be undertaken as early as practical in the process and revisited in the lead up to deal completion.
 Clearly M&A activity is a sensitive matter and corporates will be guided by their own policies and procedures, and local regulation as to who to involve.