Published: January 01, 2000
With the merger and acquisition (M&A) market showing a marked improvement in the early weeks of 2013, many companies are facing the challenges of combining the new companies. Beyond the basic requirements of aligning the new company’s cash management and systems infrastructure, what else will be required and how can treasurers add value to the integration process?
For many multinational corporations, growth can be achieved quickly through a stream of acquisitions, but cutting the deal is just the first step. Every acquired business has an existing infrastructure that must be integrated with that of the acquirer in order to maximise efficiency, visibility and control and minimise disruptions to the business.
Integrating the new company’s treasury functions into the organisation is often regarded as a straightforward exercise, albeit a demanding one, and includes combining general ledger systems, enterprise resource planning (ERP) systems or treasury management systems (TMS), as well as accounts payable and accounts receivable processes.
When it comes to M&A activity, there are two key areas where treasurers are typically involved and can add value: the mechanics of the deal itself and the subsequent integration process. However, every transaction is unique and how companies approach the integration process can vary. Where the target is bought by a dominant acquirer, the acquirer will typically integrate the new company onto its own platform. However, if the transaction is a merger of equals, the acquirer may choose to migrate to the acquired company’s platform if that system is considered superior to their own. For serial acquirers, the integration process can be particularly challenging as a new acquisition may be underway before the previous acquisition has been fully integrated.
It is nearly impossible to pull off a timely systems integration if the two companies wait until the ink is dry on the deal. To integrate acquisitions smoothly into the organisation, it is necessary to start the process as early as possible. This usually means setting the wheels in motion when the deal has been announced but not yet completed. However, given that the transaction could fall through during the pre-completion period, it is important to go into it using a common sense approach.
Even if both companies are committed to the acquisition, external factors such as regulatory involvement can intervene and prevent the deal from closing. For that reason, companies should exercise caution when exchanging information during the pre-completion phase. While treasurers might be able to discuss how the companies’ bank accounts will be integrated, other topics, such as marketing strategy and customer pricing, will need to wait until the deal has been finalised.
Once the deal is announced, a cross-functional project team should be formed. Having representatives from both companies on the team will help maintain open communication between different affected areas within the organisation. However, each company will have different requirements, and the project team should be shaped accordingly. For example, if integrating ERP systems is likely to be a significant part of the project, the team should include an IT resource to advise on technical considerations for a smooth transition.
During the planning process, the project team should closely monitor potential risks which could jeopardise the project. A lot can change before the deal is complete – so the integration plan needs to be flexible. External factors such as economic or regulatory developments may mean that some parts of the integration have to be delayed or amended during the course of the project.
Attention should also be paid to human resource risk. While the integration will require significant attention, both companies will need to continue to operate ‘business as usual’ throughout the process. It is especially important to maintain open lines of communication with employees of the acquired business about the company’s retention strategy post integration to help reassure strong employees of their value in the new organisation.
Once the project team has been formed, the next step is to begin planning for the integration. This process starts with identifying and documenting the different tasks that need to be completed as well as the timeframe and resources needed for each one.
Once all the tasks are identified, the project team should draw up a schedule stating who is responsible for each activity and the order in which activities will be carried out. While doing so, the team should also identify key metrics for each activity so that the success of the project can be defined and measured.[[[PAGE]]]
Once the deal is completed, many more tasks will need to be carried out. However, the order in which they take place will vary from company to company and is dependent upon factors such as the size, sophistication and resources available at both companies.
A typical integration project generally involves multiple stages and timelines (see figure 1).
In order to execute on the early deliverables, some pre-planning may need to be done. To keep track of deliverables and maintain a clear roadmap for the exercise, companies can put in place a tollgate system, with periodic team meetings, to evaluate whether certain milestones have been reached. This will allow the team to identify any issues that could impact the rest of the project. It also provides an opportunity to celebrate successes along the way.
Once the bank accounts and relationships have been streamlined, liquidity management processes established, and technology harmonised, treasurers might be tempted to declare the integration complete. But it is at that stage that the treasurer has the opportunity to add further value to the integration process.[[[PAGE]]]
The primary goal of any integration exercise is to integrate the two companies as quickly as possible and deliver best of breed systems and processes for the combined organisation. The treasurer has visibility into the processes and systems of both companies – and therefore has a prime opportunity to drive additional improvements beyond introducing a common infrastructure.
For example, a treasurer might ask how the company could benefit from developments such as mobile technology after the acquisition is complete. The treasurer might then look at the topic of mobile collections from a strategic point of view and initiate a strategy for doing business with its customers in a mobile environment.
Finding ways to improve working capital is another area in which treasurers can drive additional value. By adopting strategies such as migrating from paper to electronic payment methods, or by setting up a supply chain finance programme, the treasurer may be able to gain working capital benefits beyond the basic integration of processes. Some acquisitions are transformational in nature, and if a large company is merging with another of the same size, this can lead to increased clout with suppliers which can then be leveraged for a supply chain finance programme.
A further value-add approach is to implement a process benchmarking the combined company’s performance against that of its peer group and by adopting continuous improvement techniques. The process should regularly be assessed with a view to simplifying, standardising, automating and improving control wherever possible.
Not every integration exercise goes as planned, and in some cases the integration process is never fully completed. Companies are most at risk if they have not fully appreciated the complexity of the task and have not put in place a watertight plan at the outset. However, external factors such as a crisis in another market can also interfere with the project’s success – as can internal factors, such as the announcement of additional acquisitions, which can divert resources from the current project.
The impact of failing to complete the integration plan varies significantly. If crucial activities, such as identifying bank accounts and signatories, are not carried out, the company may face serious repercussions. If the company has completed the integration of processes but has not completed the final stages of the plan, failure to complete may equate to an opportunity cost rather than a major setback.
Companies can guard against such an outcome by securing adequate resources for the integration process at the outset. Serial acquirers are likely to have people working on acquisition processes full time – but for companies undertaking a one-off deal, the people assigned to work on the integration will also likely be carrying out their day jobs. If finding resources to work on the integration is likely to be an issue, companies may choose to hire consultants or interim resources to support the process.
For companies using acquisition to grow their business, the integration process is instrumental to the success of the transaction as a whole. Integrating a new acquisition can be time-consuming and complex, but by approaching the task systematically, treasurers can connect the companies’ systems and processes, while also looking for opportunities to deliver additional benefits.
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