|

Given the complexity of mergers and acquisitions (M&A), it'sunderstandable that organizations often focus exclusively onexecuting the deal, which typically includes coordinating changeswith lawyers and initiating the transactions needed forclosing. However, companies should also usethe deal-planning stage to develop aroadmap to combine the operational and strategic aspects ofa treasury integration. Doing so can helpposition the combined organization for lasting transformationfollowing an M&A deal.

|

Each treasury organization is unique, but the end goal followinga merger or acquisition remains the same for all: to optimize cashmanagement by leveraging the strengths of both companies.

|

An M&A transaction creates an opportunity to combine twounique treasury organizations—each with its own processes andplatforms—in a way that optimizes efficiency. Regardless of eachtreasury team's beginning state, it's important to formulate aroadmap that organizes the expected milestone events of thetransformation journey, such as those in Figure1 (below).

|

The roadmap should address specific actions that both treasuryteams need to take, along with the specific time period for eachaction. It should start with the due diligence and deal executiondetails that are usually the focus of a finance team'sacquisition-related activities. To ensure that due diligence andexecution are effective, the treasury group should involve bankingpartners early in the project planning and establish sponsorship ofthe project among senior leadership. The treasury team also needsto plan project management oversight of due diligence processes andintegration activities prior to the deal, establish goals for theintegrated organization, and prepare contingency plans for fundsmovement.

|

There are several potential pitfalls treasurers should try toavoid in this phase of the project. These include a lack oftemplates and/or forums for sharing information, and a lack ofownership from key resources and other stakeholders. Another commonproblem is delayed communication to impacted parties, includingbanking partners, of day-one expectations and projected changes totreasury processes.

|
|

Treasury's pre-close transition planning is crucial. So are theintegration and transformation activities, which start after thedeal closes. The integration and transformation processes presenttreasurers with an excellent opportunity to set up their combinedorganization for long-term success. Post-close integration can beroughly divided into three groups of activities, each with its ownkey objective:

|

 

1. Operational Integration: Visibility and Control from DayOne

In a roadmap for integration of multiple treasury functions, theinitial steps should be operational in nature. This is the time forthe treasury groups to combine their day-to-day activities.Ideally, in doing so, they will also clean up any accounts orprocesses that are redundant or outdated.

|

As soon as possible after the deal closes, treasury leaders mustgain visibility into, and control of, all accounts across bothorganizations' banking relationships. One part of this processinvolves submitting legal documentation to the banks requestingchanges to authorized-signer lists. Just as important is makingsure all necessary users are added, with the appropriatepermissions, to each organization's online banking portals.Updating the online portals' user credentials ensures that theemployees who are staying with the combined company will be able toperform cash reporting and transaction initiation functions. Italso gives the new treasury leadership team the ability to updatesecurity settings, remove inactive users, and eliminate productslinked to inactive accounts. Establishing user groups, each withits own set of controls and transaction limits, helps streamlineongoing management of permissions within banking portals and othertreasury systems.

|

An M&A integration is also an excellent opportunity toensure that fraud protection is consistent across accounts and thatsecurity measures are providing optimal protection to the largerfirm. Treasury staff should work with the IT security team toensure that each account has all the right fraud protectionsettings turned on. At the same time, treasury should be involvedin updating the company's email policies so that messages fromoutside the company get flagged as "external." This raises a redflag for accounts payable (A/P) clerks and others who might betargeted in phishing or impostor fraud schemes; it is an addedsafeguard against financial cybercrime.

|

In addition, a company combining treasury teams should considerimplementing multi-bank reporting and multi-bank payment initiationwhere needed. Finally, this is a great time to considerimplementing a new cash concentration structure, such as a zero-balance account (ZBA) structure.

|

Treasury groups that fail to optimize efficiency during anM&A transition often overlook opportunities to streamlineprocesses during the operational integration. For example, they mayfail to remove redundant or unused banking services, products, orfeatures. They may also fail to root out and close any unused ordormant bank accounts. Treasury teams should reach out to theirbanking partners for ideas on creating efficiencies during thispart of the M&A transition.

|

 

2. Strategic Integration: Efficiency and Scale for the LongTerm

As the operational integration proceeds, the combined treasuryteam should also take a strategic look at how to optimize theiractivities. Technology is a central component of any strategictreasury integration. Treasury leaders should ask themselves: Whatare the organization's long-term operating needs for enterpriseresource planning (ERP) and treasury management system software? Isthe consolidation of existing systems an option?

|

With the visibility gainedthrough the operational integration, treasury leaders should reviewall the combined company's disparate processes to identify manualactivities that could be automated. For example, could implementinghost-to-host (or SWIFT) connectivity improve the efficiency ofpayment processing and balance reporting? In what other areas couldtechnology make the organization more efficient?

|

Explore whether the company could make vendor and payrollpayments directly from an ERP system, perhaps via a single paymentfile. Look into consolidating receivables into one file, automatingcash application, and pursuing a remittance-matching service.

|

Digging even deeper into the purchase-to-pay and order-to-cashcycles might reveal a better approach for integrating the twoorganizations' invoicing, procurement—including supplierpreferences, terms, and settlement type—and other functions. It ismainly a matter of having centralized processes across bothorganizations so that key personnel are following standardprocedures and protocols. Areas in which treasury teams may findopportunities to increase efficiency include electronic invoicing;moving to electronic forms, as opposed to paper, wherever possible;standardizing preferred vendor lists; and deploying companywideprotocols for vendor on-boarding.

|

Similarly, a deep-dive review of bank providers and accounts isan opportunity to identify redundancies and rationalize thecombined organization's bank accounts. Having fewer accounts atfewer banks can generate cost savings and uncover pricingadvantages because doing so will increase the company's volume witheach individual provider. Plus, reducing the complexity of thecorporate banking structure can streamline regulatoryreporting.

|

As the treasury leadership team works to determine the rightapproach for bank account rationalization, they should look atestablishing a standard set of performance indicators that canprovide a framework for measuring success. Some examples of keyperformance indicators (KPIs) that are useful in bank accountrationalization include:

  • percentage of cash that is visible to central treasury
  • percentage of account balances that are reported centrally
  • error percentages for cash forecasts
  • bank counterparty risk
  • percentage of payments completed via straight-throughprocessing
  • percentage of corporate revenue spent on bank fees

 

3. Transformation: Optimizing for the Future

With consolidation and automation plans under way, treasuryleaders can focus on redeploying treasury staff members toresponsibilities that add more value to the organization. Forexample, experienced treasury professionals might be asked to focuson analyzing treasury data, strengthening governance, establishingprocedures and controls, foreign exchange (FX) hedging, leveragingdata for treasury decision-making, and preparing due diligence foranticipated future M&A activity.

|

Even after the treasury groups have fully integrated from theoperational and strategic perspectives, they need to keep lookingfor areas of improvement. The initial integration is only oneaspect of the transformation journey; an M&A transactionpresents excellent opportunities for a treasury group to enhanceprocesses and refine its structure. After the integration iscomplete, continued transformation of a treasury function couldinclude:

  • Reviewing and mapping businessprocesses to identify ways to increase automation andstreamline activities. At a high level, procure-to-pay in A/P andinvoice-to-cash processes in accounts receivable tend to offeropportunities for improvement. This may boil down to boostingefficiency in payment workflows, utilization of the combinedcompany's ERP system, remittance matching and association, andinvoice management.
  • Optimizing working capital. Treasurygroups should look at ways to consolidate payment and receivablesprocesses, to improve days payables outstanding (DPO) and dayssales outstanding (DSO), respectively. Generally, theseimprovements are possible through centralizing operations andestablishing clear procedures. Treasury teams should also look atclosing any gaps within their existing processes that may becausing delays in cash application or payment processing.
  • Leveraging access to a greater pool ofdata. For example, treasury may be able to tap intobetter information on FX rates (or rates in general), the company'stime to process payments and receivables, bank fees, and errorrates. The treasury team should also be looking to ensure that allthe data they rely on is available in real time.
  • Exploring prospective benefits of newtechnologies. Robotic process automation (RPA) cansignificantly improve efficiency, and application programminginterfaces (APIs) can enable real-time treasury capabilities. Thesetechnologies can prove particularly beneficial for lean treasuryorganizations that have minimal IT support, treasuries that areelectronically inclined for payables and receivables, andtreasuries that consider themselves "digital" today.
  • Pursuing forward-thinking centralizationinitiatives like establishing an in-house bank,shared services center, or regional treasury center. Suchinitiatives are most likely to help organizations that have closedmultiple acquisitions through the years with various cashmanagement staff. They also may be particularly beneficial tocompanies with significant activity in the Asia-Pacific region andfor businesses with pay-of-behalf-of (POBO) and/orreceivables-on-behalf-of (ROBO) structures in place.

Meeting all of these milestones requires senior-level sponsorsto shepherd the plan through to execution—helping, among otherthings, with securing funds for optimization projects and ERPupgrades. To secure executive sponsorship, treasury leaders shouldmake their requests clear and actionable, putting forward a solidproject timeline/outline with concise calls to action for seniorstaff.

|

 


See also:


 

|

It's also important to pay close attention to projectmanagement, for effective coordination of execution across thedifferent elements of the treasury roadmap. Integration andtransformation efforts require solid planning and timelines withclear milestones. Leaders should clearly list priorities anddevelop a prioritization map, accounting for areas including onlineportal consolidations, centralization and consolidation of payablesand receivables processes, ERP changes or upgrades, andimplementation of connectivity and payment transmissions.

|

The integration activities and ongoing treasury optimizationinitiative will serve as a valuable model from which to learn tosupport the future growth of the newly combined company.

|

 


James Wilkinson isvice president of corporate treasury consulting, commercialbanking, for JPMorgan Chase. TheJPMorgan Corporate TreasuryConsulting team can support clients on theirtreasury transformation journey, helping build a roadmap that worksfor their organization.

Complete your profile to continue reading and get FREE access to Treasury & Risk, part of your ALM digital membership.

  • Critical Treasury & Risk information including in-depth analysis of treasury and finance best practices, case studies with corporate innovators, informative newsletters, educational webcasts and videos, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM websites including PropertyCasualty360.com and Law.com.
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.