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M&A Liquidity Management: Making a Smooth Transition

NRU M&A Liquidity Management: Making a Smooth Transition

by Jennifer Doherty, Global Head of Commercialisation, Liquidity & Investment Solutions, Global Liquidity and Cash Management, HSBC

While the number of M&A deals in the natural resources and utility (NRU) sector has been slightly lower than previous years, it is expected to increase in the coming year [1]. This anticipated increase makes it more likely that post-M&A integration challenges will also become an increasingly common issue, as NRU treasuries are more likely to find their organisation involved in some form of M&A activity. If so, how well they address the resulting liquidity management challenges - both pre- and post-M&A - will be a major element in determining the overall success of the transaction.

Getting your own house in order

Perhaps one of the biggest priorities for treasury when there is a higher probability of their company being involved in M&A activity is ensuring that existing cash and liquidity management is as good as possible. An acquisition may already have excellent cash and liquidity management techniques, or it may be entirely at the other end of the spectrum. If the latter, then the acquirer's treasury will have a major project on its hands that will be exponentially harder if it also has to put its own house in order at the same time. Therefore, the more efficient and scalable your own structure and the sooner you can understand your acquisition the better.

There is additional pressure to review and optimise existing liquidity management arrangements now, because in addition to higher levels of sector M&A activity, NRU treasuries have only comparatively recently been affected by tighter liquidity conditions. Treasuries in most other sectors felt the liquidity impact of the 2008 financial crisis almost immediately and had to respond equally immediately by improving cash visibility, control and centralisation. At the time, the NRU sector was under much less pressure as a period of relatively high oil and commodity prices had left many companies with sufficient internal liquidity. Since the decline in oil prices began in early 2014, this situation has changed, as witnessed by the number of oil and gas business failures, with more than 100 oil and gas companies around the globe filed for bankruptcy during Q4 2014-Q2 2016 [2].