Increasing Treasury’s role in delivering deal value

24 October 2016

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In today’s low growth economic environment, forward looking companies and private equity houses with strong balance sheets and access to capital continue to turn to Mergers and Acquisition activity to create strategic growth and increase market share. We consider the Treasurer to have a key role in helping ensure an efficient and event free transaction, yet in many cases the importance of this role to the business is misunderstood and underestimated such that involvement when it does occur is often late in the process.

Why is the Treasury team often not involved in the deal at an early stage?

We believe Treasury is a crucial participant in the deal environment as the Treasurer has responsibility over key areas that influence certain drivers of transaction success, such as cash and liquidity management, internal funding strategy, financial risk management, and capital market access. Yet these critical activities are often underestimated as the deal team may view the role of Treasury as more administrative than strategic, delaying the team’s involvement.

In our view this non-involvement at an early stage can have significant consequences for the business:

  • Transaction financing may be inefficient or more costly;
  • Foreign exchange risks may not be appropriately understood;
  • The banking structures, inter-company financing structure and liquidity management processes may not be fully in place by day one which could lead to unexpected operational risks, costs and challenges; and
  • The planning team may also emphasize getting the deal completed as opposed to the post-close efficiency that drives value extraction.

Based on our experience finding the right balance between execution and optimisation is one of the most difficult things to manage throughout a deal. Here, the Treasury team can add significant value, but they must have a seat at the planning table.

What steps should the Treasurer take to secure an early seat at the planning table?

We would suggest that the Treasurer consider the following strategies to increase the likelihood of involvement earlier in any forthcoming deal process:

  • Increase visibility: Be more vocal about potential operational issues owing to delayed involvement and take steps to clarify why early engagement can assist making key cash, banking and financing activities more effective and less costly in the long run;
  • Educate management: Seek to educate senior management and the CFO on the importance of the role of Treasury both in execution the overall transaction strategy particularly around tax and legal issues and the critical day one activities such as liquidity management;
  • Build relationships: Begin to build strategic relationships before, during, and after deals with key players in your organisation’s planning and business development teams;
  • Identify past missed deal opportunities: Conduct an assessment of your organisation’s past transactions to identify areas where more involvement from the Treasury team would have reduced risk and led to a better post-close outcome;
  • Align with your other support functions: Partner strongly with other support departments, such as HR, Tax, Finance and Accounting, particularly during the due diligence phase to highlight key Treasury issues and their interconnectivity with those of these teams. This will better enable Treasury and cash opportunities to be highlighted at an earlier point; and
  • Build your team with an eye on the future: As Treasury’s role expands, so will the need for the Treasurer to rely on a diverse and flexible team with strong technical and inter personnel skills that can add value beyond routine operations particularly around the deal process.

We believe that the importance of culture in supporting these strategies cannot be overestimated. Treasuries that singularly focus on execution are becoming obsolete and are more likely to find themselves without a seat at the table when major decisions are being made. By taking the steps noted above, Treasury will be better-positioned to play its rightful role during a deal by getting involved earlier in the planning process ensuring key issues are considered at the best time. This can add further credibility to the Treasury team as a strategic business partner as well as leading to smoother, event-free transactions that yield Treasury value creation opportunities for the new organisation.

Authors

Eric Cohen, Partner - US Financial and Treasury Management | eric.cohen@us.pwc.com

Justin Parkerton, Director - Financial and Treasury Management | justin.parkerton@pwc.com

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