Late last year we published an article looking at some of the expected trends and opportunities for 2024. Some of those have proved to be worth watching, like prolonged higher interest rates and the march forward for automation in finance and treasury.
On the other hand, ESG issues have arguably fallen down the list of priorities for many executives and shareholders, with the focus on profitability and stability taking precedence in a time of economic uncertainty.
The tone of the market at the end of last year was generally quite pessimistic. Economic growth had been subdued, but the prospect of an interest rate cut wasn’t really in the conversation either. Many were concerned about what 2024 would bring.
Fast forward just a few short months, and we’re in quite a different place. This means there are new trends to consider while navigating treasury management in 2024.
While the global economic and geopolitical situation remains rocky, we’re now starting to see some positive signs. At least economically. Inflation is still a little higher than central banks would like, but it is no longer a runaway train. Stock markets have been performing well, and potential rate cuts are appearing closer on the horizon.
The Fed’s own forecast for economic growth in 2024 has improved from 1.4% to 2.1%. That’s huge. In percentage terms, the Fed expects growth to be 50% higher than what they thought it would be back in December.
So what does all that mean CFO’s, Treasurers and finance executives? Crack open the vault and start splashing some cash? Well, not exactly.
Here’s my take on the emerging trends and themes that finance and treasury leaders should be watching throughout the rest of 2024.
M&A Activity Shows Positive Signs
M&A activity has been in the doldrums for a while now. Deals are still happening, but many more aren’t making it past the due diligence stage. According to Bain & Company, M&A activity was down 15% in 2023, making it the lowest activity year in a decade.
There were a lot of converging factors at play, including macroeconomic issues such as high interest rates, geopolitical tensions and regulatory challenges. Adobe’s abandoned acquisition of Figma is one high profile example of the latter.
The overriding factor above all of these issues, however, was simply a gap in valuations. Sellers expected more than buyers were willing to pay.
But it wasn’t all bad. Deals ground to screeching halt in tech, while the healthcare, energy, life sciences and natural resources sectors all saw a rebound in deal making.
Coming into the back half of 2024, both Bain and McKinsey suggest that this year could be an inflection point for a pickup in M&A activity across the board. Their opinion is that there is a ‘backlog’ of deals waiting to happen, should the market environment shift.
At the same time, 95% of CEOs said that elevated interest rates were a factor in their deal making decisions. This suggests that should rates start to turn, there’s at least one less barrier to a deal.
But those deals are likely to look different than they have in recent years. Here’s how CFOs and treasurers can take center stage in preparing for a potential uptick in mergers and acquisitions:
Short Term Value-add
Immediate value creation is a necessary component for deals in 2024. The era of cheap money and growth at all costs looks to be over, and CEOs need to justify how an acquisition adds value to their organization today.
With potentially higher capital costs, finance teams need to think laterally about how to maximize the value of a deal. They need to dive deep into the data and source operational efficiencies and capital expenditure savings, in addition to cost center consolidation.
A large component of this comes down to the right strategic alignment. A target company needs to be able to add to the bottom line in more ways than just their top line revenue.
Risk Focused
It should come as no surprise that risk management is also a key theme for finance leaders in 2024. Obviously risk is always a factor in any deal, but the mismatch in risk premium was one of the biggest reasons why deals slowed so much in 2023.
To keep a deal moving, finance teams need to look beyond the obvious and offer solutions that minimize the company’s risk, while still capturing value.
One example is to look to structure deals in ways that minimize transaction risks and limit the impact on cash flow, such as milestone payments over multiple quarters or years. Another example is considering the level of cash vs stock consideration for any deal, shifting as much risk as possible to the sellers.
CFOs and treasurers should also be providing strategic input on the geopolitical risks that may impact deals. Considerations such as forex impacts or hedging costs, potential supply chain disruption costs and regulatory impacts all need to be considered.
Building all of these aspects into the financial model and conducting detailed scenario planning, allows finance leaders to become true strategic partners in the M&A process.
Macroeconomic Factors At a Fork in the Road
As I’ve mentioned, there are some green shoots of positive economic growth that could be the beginning of a slow but steady economic growth cycle. If rates are cut once or twice this year without causing runaway inflation, this could give businesses a shot in the arm.
That could mean renewed investment and a focus that begins to shift away from a defensive position. Though, this shouldn’t be misrepresented. Growth is likely to remain relatively subdued even through an optimistic lens.
Alternatively, inflation could spike, dashing hopes of a rate cut and reigniting the fear of a recession.
It’s somewhat of a fork in the road, and it’s the job of finance and treasury to ensure the business is prepared for either outcome. Treasury teams must take advantage of data-driven scenario planning, and adopt creative refinancing and financial risk management approaches to navigate the short term future which still appears uncertain.
It’s necessary to consider how these macroeconomic factors could impact a business. There are many aspects to consider, such as whether the Fed will achieve a soft landing, how an inflation spike could impact short term finances, and how long term elevated interest could alter a company’s long term baseline assumptions.
Increasing Focus on Operational Financial Efficiency
Sure, things may have the potential to turn around, but the drive for great efficiency isn’t going anywhere.
Efficiency remains a central objective for finance and treasury teams. But it’s not just about careful choices when it comes to big ticket items like new acquisitions. Efficiency and appropriate risk management also needs to be a focus when it comes to the finer details of day to day financial management.
Some examples:
Managing Commodity Exposure
We’ve seen how big of an impact the geopolitical environment and supply chain disruptions can have on the price of commodities. Even companies who deal with commodities with relatively stable prices can be caught unawares by sudden drops in supply.
This is a key risk management factor that companies with commodity exposure should be considering and building into their financial model and scenario plan. Not only that, but considering these scenarios in advance can give finance the data they need to provide strategic advice on hedging strategies such as futures contracts.
Supply Chain Resilience
Sometimes supply chain disruptions don’t just mean rising prices, they can also mean simply not having access to materials or goods at all. While a global shutdown to the scale of Covid19 isn’t likely, forward thinking companies are reducing their risk by reviewing their own supply chain.
This includes supplier diversification, spreading purchases across various suppliers to mitigate risks associated with dependence on a single source. The added benefit here is additional leverage when it comes to pricing, potentially reducing costs.
Going hand in hand with this is ensuring efficient inventory management. Building flexibility into the inventory process can reduce risk, while also keeping costs in check.
General Resource Management
Operational efficiency isn’t just for companies involved in the sale or manufacture of physical products. Effective resource management will continue to be necessary for service and software businesses alike.
Professional services firms need to ensure they are meticulously tracking and reporting on cost rates, billable rates and profitability metrics. Software providers need to consider their development roadmap and prioritize improvements that are most likely to increase revenue.
Companies of all types need to be closely monitoring expenses, categorizing and analyzing them to determine how the cost is contributing to corporate objectives.
Continued Shift to Real-Time Data, Automation and Advanced Analytics
All of these areas can be summarized in two words. Details and data. For finance and treasury professionals, maintaining an edge in a competitive and challenging economic environment means focusing on the details.
And to get the details right, they need access to the right data, at the right time.
Which is why we’re seeing ever-increasing uptake of automation and advanced analytics technology into the finance and treasury functions. API-first solutions are providing teams with access to all of their financial data in real-time, with 100% accuracy, on a single dashboard.
That shifts resources away from manual data collection and categorization, freeing up time to focus on high value strategic analysis and decision making.
Trovata – Flexibility Beyond Your ERP
If data is the answer, the traditional response has been to look to an ERP or legacy TMS system. These platforms have been used for decades to attempt to consolidate corporate data.
But in an API-first environment, legacy systems built around physical architecture are slower to adapt and change with a modern finance team’s needs, with significantly less flexibility in how the consolidated data is used.
ERPs are designed to be an all-encompassing solution, a jack-of-all-trades for leaders across a company. Cash management software like Trovata is specifically built to address the unique needs of finance and treasury teams.
It focuses on aggregating high-volume financial data from various sources, including banks, ERPs, and other financial systems, to provide a real-time, holistic view of cash flow.
That means access to data on a more granular level, allowing for improved liquidity management, powerful forecasting tools with sophisticated scenario planning capabilities, and enhanced risk management through more effective cash flow monitoring.
In short, it comes down to details. And as we can see, that’s what’s going to create a competitive edge throughout the rest of 2024.
Treasurers Will Improve Bank Connectivity and Data Aggregation with APIs
Traditionally, treasurers in large corporations relied on ERP or legacy TMS, but these tools create bottlenecks with time-consuming data aggregation. To overcome this hurdle, treasurers are increasingly leveraging APIs. The ease of implementing APIs, along with their ability to integrate seamlessly with existing financial systems and connect bank data with modern treasury software for automated, real-time data is a game-changer. This shift to APIs streamlines workflows and empowers treasurers with a more holistic and real-time view of their financial picture.
At Trovata, we stay ahead of the curve to provide treasurers with cutting edge solutions. We not only provide key tools for today’s challenges, but also anticipate your future needs.
Our secure open banking APIs connect directly to your banks, ensuring real-time data consolidation from all accounts. It’s automatic, accurate, and always available.
Trovata also empowers you with sophisticated forecasting tools and scenario planning. Plus, our user-friendly interface allows for easy adjustments as your business evolves.
Discover how Trovata revolutionizes treasury with APIs, AI, and groundbreaking bank connectivity. Book a demo and experience the future of finance.
