There are few business events as challenging as a corporate transaction. But whether it’s an acquisition or a divestiture, handled the right way, it can deliver significant business benefits to stakeholders.
A transaction also provides a great opportunity for treasurers to help shape strategy and outcomes by drawing on their understanding of global and regional economics and politics, and their knowledge and understanding of the entire organisation. In addition, treasurers can reinforce their credentials by delivering a clear treasury structure against a strategic framework that ensures higher levels of visibility and, as a result, the wider success of the transaction.
Some treasurers may only experience a corporate transaction a few times in their careers. Others may work within a highly acquisitive business. But in all cases, treasurers need to ensure they have an input into the deal from the earliest stage to ensure treasury benefits are identified and maximised alongside their assessment of broader business benefits (such as supporting customers with more currency and payment choices).
Consultants and trusted banking advisers can play important roles in helping the treasurer achieve their goals. Whether this is helping to define the end-state operating model or working on more operational matters such as bank mandate updates, they can provide additional resources to support a treasurer that still has day-to-day responsibilities to carry out.
The skills required can sometimes be different to those needed to run a treasury function, so choosing experts with the right level of experience of the business, sector and perhaps geographies will help to de-risk delivery and will allow treasurers to focus on the important strategic post-deal work. They will also be able to advise on technical issues such as banking systems integration and payment systems access. Access to deep subject matter experts (in areas such as ISO 20022, APIs and card payments) can help ensure that the right end-state is correctly identified along with the milestones required in any project plan.
It is never too early for the treasurer to establish a framework to guide input into the deal. It is equally important that the treasurer engages with senior executives at the earliest opportunity – it can be a chance to boost the profile of the treasury function as it will have visibility over issues that might otherwise be overlooked during the wider due diligence process.
Bringing in the strategic treasurer at an early stage to complete the planning and scoping can pay real dividends later in the process as they move towards securing delivery of an ideal end-state for the treasury function.
An overarching theme of these various aspects will be visibility, so that treasurers are able to meet the challenge of trading on Day 1 for the new entity and then focus on post-D1 phases of integration, investment and development of four ‘pillars’ – systems and technology, liquidity management and visibility, banking procedures and corporate treasury models, and payables and receivables.
In a transaction, treasury can identify value generation, with the objective of clearly defining the end-state operating model. Then the treasury team can plan the phases to get there. Depending on the granularity of the data made available, the treasurer can start to quantify benefits in the four pillars outlined below:
1. Systems and technology
As a treasurer, you should analyse what is currently available and establish what it will look like in the end-state – whether this is a new system, one of the existing systems or a combination of both. The challenges of implementing a new enterprise resource planning system (ERP) or treasury management system (TMS) should not be underestimated, though of course the transaction may provide the ideal opportunity to implement such systems. Similarly, multiple banking platforms can create multiple challenges, though this should be weighed against the potential disruption that can be caused by implementing a new system. A thorough audit will reveal enterprise-wide compatibility of systems and where disconnects can arise, which should result in the prioritisation of the action plan.
2. Liquidity management and visibility
For most treasurers, the initial priority will be visibility of all investments and borrowing facilities as soon as possible. They should carry out a thorough due diligence process to ensure visibility of all cash management aspects, checking existing management systems while planning for integration (or separation) and future transformation projects. Treasury should ask for access and detailed information of the target organisation’s treasury operations, viewed through the lenses of people, processes and systems.
Existing working capital, cash positions (by currency and by bank) and cash forecasts will need to be made available and harmonised (where material) as quickly as possible.
There will also be the opportunity to review whether centralised or decentralised cash management is the most appropriate approach for the end-state model, informed by the culture of the new organisation.
3. Banking procedures and treasury operating models and controls
During the pre-transaction phase, there will be opportunities to review the funding and broader banking arrangements as part of the design of an end-state operating model. In addition, if the deal brings in operations from a new country or jurisdiction, the treasurer can scope out potential banking and local financing partners as well as understand relevant banking regulations.
Alongside this, there are opportunities to review and enhance risk management in areas such as currency and interest rate risks and jurisdictional/regulatory risks, as well as identifying ways to reduce any pockets of trapped cash.
It will be important to ensure that robust controls over bank accounts are maintained with good practice consistently applied. There will be a period of significant change at an operational level, and it will be important that roles and responsibilities in the new model are appropriate (especially if people are leaving).
4. Payables and receivables
Post-deal, payment and receivable processes and practices will need to be reviewed and made consistent. Working capital practices may need to be reviewed to ensure that cash does not unexpectedly leave the business. Any supply chain and trade finance arrangements will need to be reviewed to ensure they are appropriate for the new structure.
Treasurers will know that they will be accountable for these four pillars, so the need for a clear and accurate picture, charting functions and facilities of the businesses will be vital.
Expectations will need to be managed – priorities should be agreed, and timeframes understood. For instance, rationalising a wide group of relationship banks will take time, as will changing funding arrangements. Separate treasury functions can be at different stages of development, but a clear roadmap will help you understand the different people, processes and systems that are currently in place and how these need to migrate to the new target operating model.
As treasurer, it will be important to understand where the liabilities lie from Day 1 of the new entity – identifying what you are immediately accountable for will help you prioritise your workflow.
Likewise, an analysis of skills will establish what you have and where you have it, which can then be mapped against what you will need to achieve optimal results in the short, medium and long term.
There will be several post-transaction opportunities that treasurers can capitalise on to enhance the efficiency and strategic value of the treasury function. These should be aligned with the broader strategic goals of the organisation and the transaction.
a) Risk management strategies and policies
b) Cash management technology integration and investment requirements
c) Future talent and skills requirements.
By seizing these post-transaction opportunities, treasurers can contribute to the overall success of the transaction, creating a more efficient, resilient, and strategically aligned treasury function that can deliver additional value to the transaction both directly and indirectly. Effective communication, collaboration and a keen understanding of the business’s financial landscape are essential for realising these opportunities.
But as mentioned above, the key point is visibility: with appropriate levels of due diligence and access to the target business in a timely fashion, treasurers will be able to understand:
a) The questions you need to ask
b) What and where the risks are, and how you prioritise them
c) What steps must be taken to deliver economic benefits of the transaction and what resources are required (including skills and technology solutions).
Barclays Bank PLC is registered in England (Company No. 1026167) with its registered office at 1 Churchill Place, London E14 5HP. Barclays Bank PLC is authorised by the Prudential Regulation Authority, and regulated by the Financial Conduct Authority (Financial Services Register No.122702) and the Prudential Regulation Authority. Barclays is a trading name and trade mark of Barclays PLC and its subsidiaries. Find out about the Financial Services Register.