Facing M&A? Eight Steps Treasurers Need to Consider

With companies globally sitting on cash reserves, pent-up demand for growth may see an uptick in mergers and acquisitions in 2012, according to several industry reports. But as companies take their time to assess targets and prepare for swift deal-making, success may be more of a sure thing for those who set up a best practice framework for evaluating the challenges and implications of merging global cash, liquidity and risk management processes and supporting technology.

For treasury, effectively optimising combined global cash, liquidity and risk management processes and technology post-merger and acquisition (M&A) can be a daunting task, particularly because most departments are already staffed at barely adequate levels. A two-phased process, however, can help treasury prepare, by first building the foundation upon which the company can then analyse, optimise and stress test. Focusing here on the cash and liquidity considerations, the eight steps outlined below can help an organisation establish its best practice framework.

Phase One: Build the Cash and Liquidity Management Foundation

You should start by creating a firm foundation of knowledge and structure around the combined cash and liquidity processes. This is the foundation that will provide companies with the visibility upon which they can grow.

Step 1: Centralise bank account administration process

Centralise the combined tracking of bank accounts and bank account activity such as openings, closings, electronic documentation storage, and signor adjustments. This will help you best understand the landscape of the cash management structure and clue you into potential areas for optimisation.

Step 2: Gain total visibility of the combined worldwide cash balances

Best practice M&A organisations are leveraging technologies to help automate and schedule the retrieval of the combined enterprise’s bank statements across all banking partners. Bank file formats are becoming standardised. For those banks that are not standardised, connectivity solutions can convert. M&A treasuries should be pulling down these files automatically through a scheduled routine before they start their business day. Having a complete and global view of worldwide cash is a must-have as a foundation builder for cash and liquidity management.

Step 3: Position the combined cash in decision worksheets

Once the bank data is retrieved, it is critical that M&A treasury departments consolidate this data into a flexible worksheet. These worksheets need to be dynamic and allow treasury professionals to slice and filter various views of their cash across the combined enterprise. Best practice organisations are able to quickly cut their data by cash flow categories, banks, bank accounts, currencies and organisational units or other business or notional hierarchies. As a foundation builder, accurate short-term liquidity decisions can now be made in confidence off of these worksheets.

Step 4: Collated and basic cash flow forecast

Building a fluid, accurate and confident cash flow forecast is tough enough. After an acquisition or merger, it becomes even tougher. Start out simple and build the foundation. Create a combined, short-term forecast structure. Make it easy to enter, easy to submit and manageable to administer. Have your goal be to identify major categories of inflows and outflows and have it structured to recognise large cash surpluses and deficits. This forecast structure is ideal to start building off of later in the M&A integration process.

Step 5: Comprehending the Investing and borrowing decision making process

Each company has unique approaches to making daily investment or borrowing decisions. The first step, post-M&A, is trying to understand how this process works for the acquired company. Understand the banking and cash concentration process. Understand the vehicles they use to borrow and invest. When is this decision made and how are the decisions tracked? This provides a strong foundation of understanding that will allow you to figure out optimised investment and debt structures in the future integration process.

Phase 2: Analyse, Optimise and Stress Test Your Cash and Liquidity Framework

Now that you’ve built your cash and liquidity foundation, it is now possible to start adding treasury value. There are probably numerous departmental optimisation initiatives that launch post-M&A, and treasury should join the party.

Step 6: Advanced cash forecast performance structures

Combining the acquired company’s short-term forecast with your own is just the first step. Forecast adjustments are critical and can only be done effectively with good intelligence into how your forecasting compares to what actually happened. Improvement can only be made when you realise what moved against you. After forecasts have been checked against actuals and the adjustment process has been honed, it’s time to run scenarios. This enables the combined enterprise to understand and plan for liquidity risk situations that may arise in the future. Common scenarios, used by world-class M&A forecasters, include: foreign exchange (FX) shifts, interest rate shifts, best case/worst case shifts, adjustment up or down by a given percentage, and shocking large inflows or outflows of the forecast. These forecasting ‘what-if’s’ can assist in the strategic decision making around investment and capital structures.

Step 7: Global liquidity structure analysis

By having the cash and liquidity foundation built, and having more complete forecasting and scenario testing in place, treasurers can look to some bigger, more strategic structural analysis. More optimised post-M&A decisions can be made around:

  • Centralising versus decentralising treasury activities.
  • Borrowing structures: decentralised, intercompany lending, in-house banks or pooling structures.
  • Global payment initiatives: setting up multilateral intercompany netting or payment factory structures.
  • Performing bank rationalisation projects and addressing bank fee structures.
Step 8: Be proactive and manage to benchmarks

Best practice treasury organisations that optimise M&A integration set up technologies that enable proactive management of their treasury enterprise. Cockpit technology is available to proactively alert treasury professionals when identified events occur or fail to occur. Rather than managing crisis reactively, treasury staff can monitor events proactively, before they become issues needing to be unwound. Traffic light indicators act as alerts for staff and trigger action. This is particularly important as you integrate acquired treasury operations. Many of these acquired processes are new, requiring more proactive administration and risk mitigation. Additionally, strong M&A treasuries manage to benchmarks. Think of benchmarks as established and agreed to treasury standards set by the acquiring company. The most adept treasury departments set alerts or emails when these benchmarks are either breached or are approaching a breaking point.


These eight steps provide treasurers at acquiring companies with an overview of the challenges they are likely to face during an acquisition and the steps they can take to ensure integration is as smooth as possible. However, no matter what the size of the company or the industry they are in, M&A is always going to be a time intensive and demanding process, and more so when the acquisition is cross-border.

Perhaps more than anyone else in an organisation, treasurers should be attuned to prospective M&A activity. As much as possible, treasurers should ensure they are part of the M&A planning process from early on. This will help chief treasurers provide a realistic picture of what the timeline for integration will look like and what additional resources may be required to accomplish the task.

To read the second article in this series, please see Treasury Risk Management Implications of M&A.


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