The past year has seen particularly strong levels of mergers and acquisitions (M&A) as corporations across a wide range of industries seek to boost growth, fuelled by a combination of large cash reserves and low funding costs. Treasury has a key role to play in the success of M&A transactions, from funding and monitoring acquisition flows upfront through to optimising liquidity, treasury operations and risk management in the longer term. In this article, Terry Dennis and Declan McGivern discuss some of the factors that help treasurers to contribute to M&A success.
Growth of cross-border M&A
One of the notable M&A trends over the past year has been the amount of cross-border activity, including a growing number of cross-regional transactions. More US companies are expanding into Europe and Asia, but there is also a growing two-way flow of transactions between emerging and developed markets. According to Citi research, M&A in North America increased by 18% during Q1, 2017, and 23% in Europe. New deal announcements totalled $560bn during this period. Similarly, a wide range of industries are engaging in cross-border M&A, including manufacturing, consumer and healthcare and technology amongst many others.
What these figures do not reveal, however, is that treasury functions have quite different experiences of M&A. For some, M&A will be a regular occurrence, with tried and tested playbooks to integrate new entities into treasury quickly. For others, transactions may be occasional, or the size of a transaction may be unprecedented. There are differences in the nature of an M&A too: some corporations will aim to rationalise and integrate treasury operations, balances and exposures quickly, while others will choose to operate treasury functions of acquired businesses on a largely independent basis for a period of time before undertaking an exercise to standardise, integrate and optimise key activities across entities.