Treasury and finance play a pivotal role in the mergers and acquisitions process. This can include everything from conducting due diligence in the early stages, providing financial forecasts, and reporting on expected cost efficiencies from the transaction.
That’s a big responsibility. Not only do treasurers have a major role in the strategic decision-making process, but they’ll also be responsible for the financial integration post-acquisition.
Right now, this is becoming a more pressing problem (though a good one to have), as M&A activity has jumped in the first quarter of 2024.
It’s in this space that the right software can become a huge advantage. Modern treasury tech can help Treasurers conduct comprehensive scenario planning prior to a deal, and then better manage the integration once it happens.
Let’s take a closer look at this increase in M&A activity, explore the role of treasury pre and post merger, and how to add value to transactions both before and after the deal is done.
M&A Activity Bounces Back
Rapidly rising interest rates and a bumpy economic backdrop resulted in a huge slowdown in M&A activity in 2022, which extended through 2023. The number of transactions completed in the US & Canada was down 43.3% YoY in December 2022, and down a further 44.2% YoY in December 2023.
However, by the end of 2023 there were starting to be some positive signs in the form of increased transaction values. While the number of transactions was still falling, December 2023 saw a 72.8% YoY increase in total transaction value. This was a trend that had started in the middle of the year, showing that more large deals were being done.
That momentum has carried through into Q1 of 2024, with global M&A volumes up 30% to around $755 billion. And those bigger deals continued to be done, with 14 transactions over $10 billion completed, compared to just 5 by this time last year.
So while many Treasurers and finance teams may not have had M&A activity as a high priority in recent years, it’s looking like it may be coming back on the agenda.
That means refocusing on how treasury and finance can support the success of cross-border deals and integrating multiple entities. This can effectively be broken down into two components.
- First is the strategic advisory role that treasury and finance should play in the pre-acquisition stage, adding context and providing insight on potential financial implications of any deal.
- Second is working with the rest of the business to facilitate a smooth integration after the acquisition is complete. This should not only be about fitting one set of processes and systems into another, but looking to take the best from both companies to maximize the long term growth potential across the entire company.
Let’s look at both of these a little closer.
What Treasurers Need to Know Pre-Acquisition
There’s a substantial amount of work to be done before any acquisition or merger can take place. The research, negotiation and due diligence process can take many months, and in some cases even years.
For Treasurers and finance executives, these are three of the most important elements to this pre-acquisition phase:
Financing Decisions
Treasury and finance should be closely involved with the strategic decision making on how the deal is going to be financed. In 2024 we are still experiencing high interest rates relative to the past decade, and this needs to be taken into account when assessing debt financing options.
Where relevant, the valuation of the merger or acquisition target should take into account these higher financing costs, reflecting the true cost to the company compared to a few years ago.
Treasurers and finance teams need to take a creative approach and a long term view to financing in this environment. For example, with inflation slightly increasing in recent months, they should look at how they can protect the company against potential for these rates to remain elevated for some time yet.
Conversely, they should look to structure the debt in a way that provides the opportunity to convert or refinance, if and when rates fall.
Cash Impact
Many acquisitions will include some form of cash consideration, or at least costs incurred in the due diligence and integration stages of the deal. This means a company’s cash position will be impacted, and it’s the role of treasury to ensure they have a solid grasp on how significant this will be.
It’s important to understand now just how the cash position your company will change, but also that of the acquisition target. Will the new structure mean pooling of cash reserves? Are there any regulatory capital requirements that need to be adhered to?
Scenario Planning
Both of these issues, and many more, can be answered through comprehensive scenario planning. No matter how thorough the pre-acquisition research and due diligence process is, any new merger or acquisition comes with uncertainty.
Scenario planning helps limit this. Treasurers can use modern tech software to look at a range of different financial forecasts based on changing assumptions. This can help guide the strategy around how the deal gets done, highlighting certain potential risks and assessing ways to minimize others.
How Treasurers Can Ensure Smooth Integration Post-Acquisition
The deal might be done, but the work for treasury and finance definitely isn’t. Even the best laid plan or forecast can be challenging to implement, and the finance and treasury team must play a key part in making it happen.
There are a large number of tasks that need to be done, from ‘housekeeping’ to long term strategy choices to maximize the enterprise value of the deal.
Account & Data Integration
The very first step is to integrate all of the account information and financial data. This will depend on the cash management system used. A master spreadsheet will require a significant amount of manual work, while using a technology solution such as a TMS or API-first treasury platform will make this task far more efficient.
The important thing is to ensure that all of the data is available, somewhere, so that treasury and finance teams can begin to analyze it and implement their integration strategy.
Cash Visibility
Both at this initial stage and on an ongoing basis, maintaining cash visibility is obviously critical. When it comes to merging multiple entities and dealing with a whole new set of accounts overnight, this is easier said than done.
For accurate, timely cash data, technology really is the only solution. Manually updating spreadsheets involves a substantial amount of time, and introduces the potential for human error. Especially when integrating a number of new banking portals into the mix.
ERPs and legacy TMSs can be useful additions, but the file-based data transfer system is likely to mean that manual work is still required to consolidate the data. API-first solutions like Trovata use open banking technology to provide a real time view of all of your cash balance and transaction data, in a single place, with 100% accuracy.
Getting this cash visibility right is arguably the most important thing Treasurers can do to minimize risk and maximize efficiency when integrating after a merger or acquisition. APIs have fast become the best way to make this a reality.
Review Payments and Receivables Process
After cash visibility, it’s the management of cash inflows and outflows that should be the next priority. There’s a high level of institutional knowledge that can easily become muddied when two businesses integrate. Finance and treasury teams will often be tasked with dealing with vendors and transaction types they haven’t dealt with before, which can create confusion and lead to errors if not managed properly.
Where technology helps here is by allowing a single source to reconcile receivables and make payments, across every entity and every different banking portal.
Treasurers should review the existing payments process and look for ways to simplify and consolidate it for simpler ongoing management, improved efficiency and enhanced risk management.
Implement Automation
Of course this wouldn’t be an article written in 2024 if there wasn’t some talk of automation. Beyond the hype there are a large number of use cases for finance and treasury that can reduce the amount of manual data entry and financial model building, freeing up more time on strategic analysis of the data.
Modern treasury management platforms like Trovata leverage AI and machine learning to automate reporting and forecasting. Additionally a sophisticated tagging feature, gives Treasurers the ability to automatically categorize transitions and build reports in a fraction of the time it would take to do manually. This extends to automated forecasting, trend analysis and detailed search functionality.
Using automation in the right way can help bring to life the efficiencies promised with a merger or acquisition, as well as improving analysis capabilities (and therefore, strategic decision making) of the new combined entity.
Trovata Offers Treasurers The Right Tech For Smooth M&A Integration
The right technology is like the oil in the financial engine of the M&A process. It provides Treasurers with all of their relevant data at their fingertips, as well as a comprehensive suite of tools to analyze, search and forecast that data into the future. It smooths the process, limiting the pain that can come with bringing together two separate entities through improved data management and integration.
If there’s M&A activity on the horizon for your company, now is the time to look at software solutions that can make the process easier and more efficient.
But it’s not just about M&A. API-first treasury tech like Trovata allows Treasury and Finance teams to operate at scale, without the need for ongoing increases in headcount. The direct API connection between all of your banking portals into the platform provides a single source of truth for all of your cash and transaction data.
Not only does this visibility help minimize risk by allowing better liquidity management, it can also boost revenue through improved cash allocation to maximize yields.
Sophisticated scenario planning tools allow users to assess the impact of various scenarios outside of M&A activity, and project how the business might perform based on changing macro assumptions such as consumer spending or interest rates.
Simply put, Trovata offers Treasurers with a comprehensive technology solution that’s built from the ground up to improve their effectiveness, helping them to become a true strategic partner to the business. Book a demo today to find out more!
