Mergers and Acquisitions and their Impact on Treasury

M&A operations can take two distinct forms :

• mergers and absorptions, involving the dissolution of one company for the benefit of another
• mergers of two or more entities, resulting in the creation of a new company.

Historically, the failure rate of Mergers and Acquisitions exceeds 60%. This major M&A failure rate is not only due to improper human affinity or integration; it is often the result of inappropriate pre-investment decisions or a financial integration process that requires too much time and resources.

This process is then likely to be jeopardized if all means are not properly implemented or if decisions have been biased using incorrect data.

The failure of Mergers and Acquisitions is often the result of inappropriate pre-investment decisions.

To overcome challenges, the treasury department is obviously a key component that ensures the decisions are taken objectively and the company is valuated accurately.

These operations are often time-consuming: negotiations with banking partners, identification of liquidity risks, valuation of assets… Therefore they generate a significant workload for corporate treasurers which have the objective to lower operational and organizational risks. Nevertheless they remain essential to a sustainable transformation thanks in particular to the optimization of technological resources.

Consequently, and despite the issues strictly related to restructuring, the ability of gathering multiple Information System software is one of the major challenges to be addressed. In this article, we will therefore present the challenges related to the mutualization of the treasury management system and the advantages of the TMS (Treasury Management System) to meet them.

M&A operations: the Challenges of the Treasurer

In the context of a specific “Mergers & Acquisitions” corporate strategy, the treasury department has to deal with several operational M&A operations and the transformation of the group’s organization.

They involve in particular :

• The opening, closing and merging of bank accounts
• The proper reassignment of transactions and operations to the entities involved
• The reassignment of accounting entries
• The update of information related to forecasts and payments (sending and receiving)
• The creation and modification of user and signature rights
• The data consolidation and associated reporting

Another more strategic and essential issue for such companies consists in the ability of accurately identifying potential economic synergies and fairly valuating of assets and liabilities.

How can we assess if the merge of two groups will be profitable in terms of financial coverage, debt ratios, risk exposure, liquidity?
>> The flexibility of the TMS and the support provided by the TMS publisher can significantly simplify and speed up the related steps. Indeed, the TMS enables treasury management processes to be streamlined for companies with high external growth.

The Answers of a TMS to the Problematics of Mergers and Acquisitions

The benefits of using a TMS in the context of M&A activities are significant, provided that the TMS has adequate parameterization flexibility.

1. In terms of a financial investment tool, a TMS provides essential assistance in the following processes:

• The creation of appropriate financial instruments to effectively finance various subsidiaries >> Are financial transactions properly managed?
• The fair valuation of my balance sheet >> Is the company correctly valued? Are the market share exchanges correctly balanced and fair?
• The position of my trading portfolios >> How will my exposure to market risks evolve ? Do I have access to enough liquidity?
• Cash flow simulation and calculation of management ratios >> Will my debt ratio increase in a sustainable way?

2. From a functional and organizational point of view, the benefits are also important:

• the faster transition between the subsidiary’s banks and those used by the group.
• the automatic grouping of entities according to the criteria defined by the company
• the quick setup of a new currency in case of an acquisition abroad
• the restructuring of hierarchical levels, business units and all their parent and child elements
• personalized Business Intelligence, with reports on different views (e.g. cash positions by country, by region, by branch, etc.).
• the history of closed bank accounts and their segregation from active accounts. In a Treasury Management System such as Treasury Line, in compliance with the customer’s request, the repositories are not deleted physically but logically.
• simplification or customization of workflows, especially for companies with a complex organization structure
• native in-house bank integration, able to accelerate and facilitate the integration of merged or acquired entities and more efficient in change management than a classical model (as noted by DBS Bank in its article on IHB: https://treasuryprism.dbs.com/treasury-articles/in-house-banking-at-home-in-your-organisation)

3. Technical dimension is finally important as well. The rise of the Cloud and SaaS applications provides treasurers and their IT departments with the utmost reference of flexibility and speed of deployment. It also makes possible after a merger or acquisition, the accessibility to a global and customizable view of the group liquidity reporting.

The TMS also provides instant access to the information available at any time for previewing or modeling in the future.

Focus on Datalog TMS

Perfectly conscious of these challenges linked to M&A and/or equity investments, DataLog Finance offers treasurers the opportunity to simplify the restructuring of their company by relieving our customers of many tedious and complex tasks.

To meet these challenges and support the external growth of companies, the TMS Treasury Line has integrated new functionalities which allows a quick adaptation to changing structures thanks to its flexibility and parameterization capabilities,

Our clients whose strategy includes external growth have chosen Treasury Line to support and implement their consolidation and buyout strategies.
Among the advantages of TMS that have particularly convinced them :

• The TMS Treasury Line natively manages communication standards with thousands of banks around the world and a wide range of banking formats mainly suitable to international acquisitions.
• The provision of tools for reorganizing the repository
• Automatically update transactions, forecasts and payments through its native integrated platform architecture
• Management of local and international accounting standards facilitating the updating of accounting entries
• A wide range of financing instruments from simple loans to elaborated structures of credit lines to support the merger’s financing strategies
• Adapted and powerful reporting tools for monitoring cash flows and financial positions in real time.
• …

For more information, contact us.