Deal-making is high on the global agenda. Bloomberg reports that in the US, inbound merger and acquisition (M&A) deals hit a record figure of US$586.7bn in 2016, a 35.15% hike from 2015, and although activity is expected to drop slightly in 2017, the change in administration hasn’t had any marked effect yet. In the UK, M&A activity has hit post-2008 levels – and already this year no less than 25 deals totalling US$24bn have been in the works.
The levels are prompting a re-evaluation of the role of the treasurer in this kind of strategic corporate activity – or at least they should be. Traditionally, their focus has been on preparing information for the C-suite and the board, and then integrating systems and processes after the decision has been made. The issue is often that the information on which the board is basing its decisions – for example, in the annual capital allocation process – is wrong.
The corporate risk team at McKinsey identified this problem some years ago, at large commodity intensive corporates (those that have significant exposure to raw materials in their supply chain or finished goods), and ran a cash flow at risk (CFaR) roadshow to the boards of over 20 global companies.
Similarly, our firm has witnessed forward-thinking and innovative treasurers starting to take steps to redress the problem, bringing the management of treasury and commodity procurement together to have far richer information at their disposal.
Deepening treasury’s role
Not only does a combined approach to these functions enable much smarter management of currency and commodity price volatility – which is a major advantage in and of itself – but it also lays the foundations for a much more strategic role from the treasurer.
Treasurers can shift their focus towards the annual capital allocation process, and earnings, cash flow and capital at risk. Too many boards are making decisions on inaccurate data, because the supporting technology is unable to provide the full picture. We’re talking about optimising the organisation’s balance sheet. That means better management of credit risk – and therefore, critically – better access to capital.
That’s where things get interesting. Suddenly that catapults the role of the treasurer from risk manager to business change enabler, providing critical information to the board. It moves the mind-set and investment motives beyond just compliance, cost, and technology. With better access to capital, the board has greater freedom to make corporate decisions regarding M&A activity, regional expansion or product diversification.
Rather than being reactive, it gives companies the best possible chance to be proactive. For ambitious companies with expansion in their sights, this is a must. What’s more, the treasurer who opens this door is truly aligning themselves to the needs of the chief financial officer (CFO). They’ll be a superhero.
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