Mergers and Acquisitions – The IT Impacts on Treasury and How Enterprises Can Mitigate their Risk

Published  5 MIN READ

Mergers and acquisitions are one of the biggest drivers of non-strategic technology acquisition, resulting in the highly complex IT platforms that many enterprises operate and the related creation of multiple technology stacks. These stacks create disjointed technology silos that make it difficult for enterprises to optimise end-to-end value streams – end-to-end business processes that generate value for customers. And they can hamper individual departments within an organisation from executing the work they need to do efficiently.

However, there is one department in particular where poor IT integration will result in a particularly high degree of risk – and that is treasury.

There are a number of key issues that directly impact treasury of which every organisation undergoing a merger or acquisition needs to be mindful. Typically, these include differences in observations of best practices and interpretation of fiduciary responsibilities and regulations. These areas have to be normalised – and that can be difficult, depending how an organisation has interpreted the generally acceptable accounting practices compared with those of the organisation they are acquiring. Equally, there is likely to be some reduction in staff in this area. Acquiring organisations may already have individuals in place carrying out treasury work and may not require other employees from the acquired organisation to perform the same role.

In this already complex situation, enterprises then need to factor in the inevitable issues around systems integration. There are multiple paths that can be taken.

The first is maintaining in situ all the systems that each of the merging or acquiring entities had, but doing so introduces cost, complexity, data accumulation and data interpretation. There are data conversions that can occur from one treasury management package to another, which introduces significant risks in terms of timing failure and cost of completion, for example. The other option is to do a cold cutover from the existing system of the acquired company to that of the acquiring business.

Both options introduce significant risk into a critical function of the enterprise. Since treasury performs cash management, taking the wrong option could leave the organisation with an unexpected cash shortfall, requiring emergency third-party funding at higher than normal rates. That in itself is a significant risk. Forecasting is another major concern, especially as the department will have the added challenge of forecasting the performance of a new entity or entities following the acquisition.

Ongoing silos

Organisations need to examine the above risks early during the diligence for the merger or acquisition. They should start with foundational questions of regarding which package/s is/are being used for the various elements of treasury. This entails focusing in particular on cash forecasting, working capital management, cash management and investment management – and then which operating systems those packages require.

It is not unusual to see a scenario where the acquiring organisation has placed some or all of its automation for these areas on a mainframe package, perhaps processing in an enterprise resource planning (ERP) system such as SAP®, whereas the acquired entity may be using another third-party package that was on a Windows or Unix server. It can become even more complicated in those cases where one entity is using a cloud package for their treasury management.

In this context, poor IT integration will lead to ongoing operational silos. The impacts will be significant. There will be increased costs because, if departments remain in siloed situations, they will likely have to establish exception processes to bring the relevant figures together and reconcile them. There will also be increased chances for error coming from those processes, since they are likely to be manual at the beginning. Even if they become automated later, the chances of institutionalising an incorrect or biased formula into technology is a risk that has to be recognised.

Finding a solution

So how can organisations address these issues? One of the elements we see as an urgent requirement across enterprises globally is to look at how they manage their value streams, (typically, any end-to-end business process that generates value for customers and for the enterprise). Clearly, the different large-scale activities we have described for treasury – cash management, investment management and forecasting – are examples. In any enterprise from mid-market up, these value streams will always span multiple packages, products, custom processes or applications, and invariably multiple technology stacks.

Spanning those stacks to obtain a global view of the value stream in terms of its orchestration with its conditional views and dependencies is key for enterprises today, as is managing the throughput of the technology even as it crosses any multiple technology stacks.

So how would this work in the context of treasury? Here, a typical value stream might include some induction from a Windows web server that then converts the data and passes it to a relational database on the mainframe. This is where analysis and post-processing is completed before it is passed to a treasury package that is operating on a Unix server or a cloud. That process is difficult to manage currently because there is no single centralised view of the different pieces; their current workloading and their ability to take on additional load.

In order to break down these barriers, cross-technology stack orchestration and performance management is key. Without timely usage information, IT managers have no insight into organisational needs. By leveraging proactive analysis tools for high-visibility monitoring and capacity planning, IT managers can improve reliability and productivity in their IT environment. This result can only be achieved with a solution that allows for IT resources utilisation competency of automated analysis, reporting, modelling and, of course, capacity planning across technology stacks.

With this information, IT managers can make informed decisions about how they can most effectively leverage their resources and understand where there are opportunities to improve the way they are using their current systems. It also enables better planning for peak loads, helps organisations recognise if they are paying for unneeded capacity and cut costs, and makes it easier for them to better understand their scalability needs. Armed with this information, organisations can maintain productivity and deliver visibility for IT throughout their business, empowering them to forecast the impact of business growth across IT platforms, set realistic expectations for the business and deliver enhanced value streams. That will benefit the whole enterprise, while in the context of treasury, it will be key in enabling the department to cut costs, ensure business continuity and reduce risks.