The midsize and large corporate markets are diverging again after years of pursuing similar agendas, thanks to the spread of sophisticated software that became increasingly cheap and accessible through ASP and SaaS delivery. While leading multinationals push the envelope with ISO 20022 XML projects, various SWIFT initiatives and electronic bank account management, their middle-market colleagues opt for proven solutions they think can quickly save them time and money.
As the economic storm passes, middle-market treasuries "are back in business, looking for ways to cash in on technology and automation," notes Bridgit Chayt, executive vice president for treasury management services at Comerica Bank. "They're thinking ahead, but they are very pragmatic, looking for projects with a quick, measurable return on investment." That thinking certainly permeates SFN Group.
The terms "large" and "multinational" once went together, but not any more, as global sales and sourcing have spread quickly through much of the middle market. A case in point is Biomet's streamlining its global cash flows.
Middle-market treasurers are driven equally by cash management concerns--conserving liquidity, establishing greater control over the timing of cash outflows, buying at discounted prices, earning rebates--as well as process efficiency concerns, notes Robert Clarkson, vice president and general manager for American Express commercial cards. "Many lack sophisticated systems that can track their spending, so they use a consolidated billing service that can do this for them," he says.
As more middle-market companies go global, handling cash flows in many currencies and geographies and doing it efficiently is becoming a requirement for treasuries that have only small staffs and limited budgets. But the tools are there. Just ask Mike Hodges, corporate treasurer and vice president at $2.7 billion Biomet, a medical device manufacturer in Warsaw, Ind. Efficient deployment of cash is critical for Biomet, which was taken private in a 2007 leveraged buyout that left the company with $6.2 billion of debt. And with a growing share of its cash flow coming in more than 20 currencies, creating an efficient banking infrastructure was the key to tight liquidity management on a global scale and cost-efficient multicurrency banking. For Biomet, that has meant moving to a notional cash pool and multilateral netting.
Rigorous domestic cash management is also important. "We had just gone from no leverage to highly leveraged when I arrived," Hodges recalls. "The big focus was on getting our arms around our global cash flow, mobilizing it and getting it to where it was needed."
Locating and mobilizing Biomet's cash meant consolidating its business with one lockbox provider, Wells Fargo, which processes and reports about $100 million monthly, approximately 75% of the incoming cash. The company uses one disbursement bank, Bank of America, which is also its concentration bank and the lead bank in its revolvers.
As a maker of orthopedic products like artificial knees and hips, Biomet is dealing not just with globalization and its LBO debt; it's also feeling some impact from the global wave of healthcare reform. How that will affect demand may show up in Europe before the U.S. "In many countries across Europe, the public sector makes up the largest portion of our business, and everyone is trying to rein in costs," Hodges says. "So far, it hasn't had a big impact on our business, but the competitive landscape is definitely getting tougher."
So it's good that Hodges knows the medical field, having spent 18 years in the treasury of drug maker Abbott, where he rose to assistant treasurer. He then spent two years as corporate treasurer at Hyatt Hotels before joining Biomet. Hodges heads a staff of five.
The SFN Group is a middle-market company with annual revenue of $2 billion. Yet its humming payments factory would be the envy of many Fortune 500 corporations. SFN makes 50,000 payroll payments every Friday. How many are paper checks? Usually around 50. SFN is a temporary staffing and recruitment company, with about half its workers in the lower-paid clerical and light industrial ranks, and the rest in the higher-paid professional ranks, such as IT, HR, engineering, finance and accounting, so its stake in doing payments well is huge.
A privately held $500 million company with a two-person treasury operation can find affordable technology and use it to achieve a high degree of automation and straight-through processing if it finds the right formula. For Chicago-based CareerBuilder.com, the first step was finding the right people. Director of treasury Philip Mattes joined in 2007 from PricewaterhouseCoopers, where he had spent eight years as a corporate treasury consultant, helping companies improve their treasury functions and choose and implement treasury workstations.