A cross-functional team is crucial to the positive outcome of an M&A deal and, once the ink has dried, treasury teams will have the opportunity to upgrade their infrastructure and embark on fresh best practice initiatives.
The value of global mergers and acquisitions (M&A) reached about $4tr as of August 2021, which is more than double the same period in 2020. [1] Low interest rates, excess liquidity, a search for growth and a positive economic outlook are some factors influencing this increase, and are expected to continue driving strong deal momentum throughout the year. [2]
Whether organisations are brought together, or carved out through separations and divestitures, corporate treasury teams have a strategic role to play across these complex business activities. Primarily, treasurers can help manage the deal life cycle and ensure a successful treasury transformation by being engaged from when the deal is first announced through to the settlement and post-deal integration.
1. How to plan and prepare for M&A
Planning is crucial. Treasurers need to establish governance and gather information to successfully settle the transaction and gain visibility and control after the deal is completed.
Start by building a cross-functional team that includes internal groups such as finance, legal, tax and compliance, as well as third-party providers including banks, technology vendors and consultants. This group can identify potential issues, avoid silos and highlight interdependencies. The cross-functional team may also centralise how it tracks its initiatives, from the way activities are prioritised to monitoring organisational, process and technological dependencies.
2. How to successfully settle the M&A transaction
When closing a deal, treasury teams need to manage competing priorities. These range from arranging finances, consolidating and moving the funds, and creating transaction contingencies to establishing an implementation plan, delineating roles and responsibilities, completing required documentation, and ensuring there are sufficient intraday limits to settle the transaction.
Falling short in any single area could negatively impact the deal timeline. That’s why planning with business partners from the beginning is important and can help avoid failures. For instance, the team needs a banking provider from the outset that can help complete the documentation to operate bank accounts and ensure access to, and the management of, liquidity post transaction. And considering that more than half the M&A deals [1] originated from North America through August 2021, strong US dollar clearing capabilities are a must-have.
3. How to optimise synergies across M&A businesses
Once an M&A deal is successfully executed, corporate treasury teams have the opportunity to transform and upgrade their infrastructure. Bank account rationalisation is an early and easy win. This helps simplify the treasury structure, reduce costs associated with maintaining accounts and optimise liquidity management by using solutions such as pooling and virtual accounts.
Corporate treasurers also need to consider how to best upgrade and modernise their treasury infrastructure – evaluating what best supports the future state of the treasury and its underlying processes. Part of the of consideration is how to build efficient and automated processes to help unlock excess working capital and improve operational efficiency for functions such as order-to-cash and procure-to-pay. Application programming interfaces (APIs) are a common solution because of their ability to streamline, standardise, automate, and provide information in real time in a scalable way.
Integrating existing treasury functions with notional pooling structures
A global payments brand that supports online money transfers sought to integrate a newly acquired business into its existing treasury structure. Engaging J.P. Morgan from the start, the brand moved from initial scoping to a notional pooling go-live in just four months. The structure helped centralise funds for stronger visibility and control of cash balances, automate funding requirements and reduce dependencies from third parties – and all of this was done with a seamless integration and minimal short-term disruption to the business’ operations.
Bringing it together and implementing treasury best practices
Businesses engaged in M&A deals need to define a vision, collect the correct data and engage the right parties throughout every step of the journey. But treasurers don’t have to go at it alone. To help ensure strong execution and subsequently building a stronger treasury function post deal, businesses should engage bank partners from the beginning. A global banking partner can act as an adviser on treasury best practices with global and local expertise, as well as guide the development of an effective action plan that can ultimately lead to a successfully executed deal.
Sources:
1 Dealogic as of 31 August, 2021. 122% more than 2020 YTD total deal value of $1.8tr. North America contributed 64% to the global volume (46% in 2020 YTD)
2 “2021 Global M&A Outlook,” J.P. Morgan, 2021.
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