Treasurers join the M&A starting blocks

By:
Kimberley Long
Published on:

Having a complete view of a company’s financial position is giving corporate treasurers a greater role in the M&A process. From raising the initial financing to managing the new payroll structure, companies are finding the earlier their treasurers become involved, the better.

M&A activity is increasing. According to Deloitte’s M&A Index 2016 there was more than $4 trillion-worth of deals completed in 2015, the highest value recorded since 2007. There is also growing evidence that the role of corporate treasurers in acquisitions is becoming more important. Deloitte’s 2015 Global Corporate Treasury Survey found 70% of treasurers have now been mandated by their chief financial officers to become involved in a number of areas, among them offering greater support to other teams, including M&A.

This represents a big change in the role of the corporate treasurer. Traditionally, treasurers have been left out until very late in the M&A process. Not only does this leave them with less time to complete their side of the merger, it also ignores their valuable knowledge on what will be needed to complete the process swiftly. There is now a growing appreciation that the treasurer has a unique insight into a company’s financial position. Rather than being a secondary part of the acquisition, their skills are essential for raising the funds needed and for planning future integration.

Christof Nelischer-160x186
Christof Nelischer, Willis
Towers Watson Group

Christof Nelischer, global group treasurer with Willis Towers Watson Group, says: "In the past, the treasury departments were often seen more as a transaction facilitator; the function that made the money available and moved it into the right place when it was due. That has changed, and there is more recognition that treasurers add value to risk management and capital management."

The shift comes down to how the treasurers are now perceived by other teams in a company. Carl Slabicki, vice-president and senior product manager, treasury services at BNY Mellon, explains: "Historically treasurers did not have much influence. But now they are key contributors, with the M&A teams looking to them as partners rather than service providers."

Corporates are realizing the treasurer can give them access to considerable sums that are readily available through their current processes, rather than having to go out to the market to raise funds. Philippe Marcotte, deputy head of cash management at Société Générale, says this ability is down to having increasingly sophisticated cash management tools at their disposal that can provide a full overview of the group and its subsidiaries. They understand what is available to be leveraged through instruments such as factoring or securitization. They also have control of overdrafts and credit facilities that can be used as a bridge to finance the acquisition.

Marcotte says: "Treasurers can raise hundreds of millions now through the liquidity management given by their banking tools. This gives the treasurer the real power."

He adds that having access to this cash internally could be the make or break difference for an acquisition going ahead: "If the company cannot bring its own cash to fund a part of the transaction, it will be more difficult for them to finance it, because it will be considered as a heavy risk by the lenders or the investors."

Being brought into the process at the earliest possible point will greatly aid the treasurer in having the necessary funds available at the right time. Although in the early stages the exact details of the acquisition may not be shared, providing treasurers with as much salient detail as possible will give them the edge in planning.

"Treasury teams need to know in advance about potential mergers, including the size, likelihood and timing, to effectively plan their cash flow," says Slabicki. "Even if the exact details of the merger are confidential, the timing and amount required should be known as early as possible. The earlier they are involved with potential mergers, the more effectively they can manage how to finance them."

Essential

For companies that regularly carry out acquisitions, the involvement of the treasurer is essential. Jonathon Traer-Clark, head of strategy for GTS, Bank of America Merrill Lynch, says: "We expect that companies with an institutionalized M&A process will organize their treasury to support repeat transactions. They will likely be closely aligned with corporate finance, but have to find the right balance on need-to-know and confidentiality."

Their value at a senior management level is also being better understood. This is also changing their role, as their breadth of knowledge and skill sets are both expanding.

"We see an increasing number of treasurers taking on investor-relations roles," says Traer-Clark. "They are comfortable talking about the financials of the organization; discussing the company performance and strategy is a natural extension of the role."

Bruce Meuli, BAML’s global business solutions executive for GTS EMEA, adds: "Running company mergers efficiently requires the treasurer to have a variety of skills, some of which may be new to the function. Cross-functional business knowledge, operational excellence and change-management skills are critical."

Even those who sit at the centre of a large international team will find that they will be required to take the leading role. Meuli says: "Although treasurers working in conjunction with a shared service centre will have a pool of talent to draw from, they will still need to assume a leadership role during the M&A process."

Having greater visibility in the M&A process is giving the treasurers more authority over which acquisitions are possible and how they can be executed.

Corina Keller, head of treasury operations and control at chemical company Altana, explains: "We will talk regularly internally to state up-front the limit of what we can afford within the next couple of months. It is not a case of the M&A team looking at what they want and then seeing if we can finance it, we have already discussed the highest possible amount under which conditions with them in advance."