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Cash management in a corporate transaction

Cash management in a corporate transaction

Visibility is key to driving stakeholder benefits.

Delivering a competitive edge for your business

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. Gail Erskine explains why.

A transaction provides a great opportunity for treasurers to help shape strategy and outcomes by drawing on their understanding of global and regional economics and politics, plus their knowledge and understanding of the entire organisation. By delivering a clear treasury structure against a strategic framework that ensures higher levels of visibility, there is the opportunity for wider success of the transaction.

Gail Erskine

Head of Cash Management, International Corporates, Funds and Insurance, Barclays

Input at the earliest possible stage

Some treasurers may only experience a corporate transaction a few times in their careers, whilst others may work within a highly acquisitive business. 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.

Seek trusted advice

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.

We discuss how migration to ISO 20022 has a number of significant implications for Corporates and their partners across the payments industry.

Corporates and their treasurers need to take note and anticipate this reimagining of payments.

Engage early

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.

Scoping the ideal operating model

Visibility is paramount for treasurers to meet the challenge of trading on day 1 for the new entity and then focus on post-day 1 phases of integration, investment and development. In a transaction, treasury can identify value generation, with the objective of clearly defining the end-state operating model. Depending on the granularity of the data made available, the treasurer can start to quantify benefits in the four pillars outlined below. 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.

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.

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.

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).

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.

Expectations will need to be managed. 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.

Gail Erskine

Head of Cash Management, International Corporates, Funds and Insurance, Barclays

After the deal

Post transaction opportunities

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, such as:

  • risk management strategies and policies
  • cash management technology integration and investment requirements
  • future talent and skills requirements.

Future success

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.

The key point in all of this is visibility. With appropriate levels of due diligence and access to the target business in a timely fashion, treasurers will be able to understand:

  • the questions you need to ask
  • what and where the risks are, and how you prioritise them
  • what steps must be taken to deliver economic benefits of the transaction and what resources are required, including skills and technology solutions.

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