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Getting to Grips with Working Capital

by Alexandre Clar, Director, Global Treasury (EMEA), PPG Industries

In January 2008, PPG made their largest-ever acquisition by purchasing the Dutch-based SigmaKalon from financial sponsor Bain Capital. This acquisition differed from previous M&A activity as the two organisations were of comparable size in Europe, but with very different business models (figure 1). However, in order to leverage the full potential of the new organisation, and optimise cash concentration for the repayment of corporate debt, Treasury needed to combine the cash management activities of PPG and SigmaKalon in an efficient manner.This article outlines some of the challenges and considerations in achieving this.


Business organisation

In addition to the company’s organisational complexity and geographical diversity, most of the 13 business units are organised around a Principal Structure. Essentially, a Principal Structure is a corporate business model where raw materials are purchased by a principal entity, delivered to local warehouses owned by the principal, then processed by consignment manufacturers (factories) on a toll fee basis. Finished goods are then sold by local sales companies at cost plus a fee. To facilitate this business model, the company’s principal is located in Switzerland. However, PPG Finance BV, its in-house bank, is located in the Netherlands, a country with the most extensive network of tax exemption treaties, but also where notional pooling is well established and where the provision of security confined to a right of set-off instead of general cross-guarantees is also accepted.