|3-4-2017 | GTNews | Lionel Pavey | Udo Rademakers |

Treasurers to be the super-hero for their CFO? We found this article headline on GTNews.com so intriguing that we asked our experts Lionel Pavey and Udo Rademakers to comment on it. According to the article the role of the treasurer has to be re-evaluated due to the fact that deal-making (figures of mergers and acquisitions have increased) is high on the global agenda. Traditionally treasurers focussed on informing the C-Suite and the board and integrated systems and processes after decisions about a deal were made.  Treasurers started to address this issue, which led to a new role of the treasurer, in fact a much more strategic role. The treasurer was no longer a risk manager, but also a ‘business change enabler ‘.  GTNews states: ‘The treasurer who opens this door is truly aligning themselves to the needs of the chief financial officer (CFO).They’ll be a superhero.’

Expert Lionel Pavey added some valuable information on the 4 different stages of a M&A proces.

Targeting

1. Examine the different methods of payment – cash, debt, equity
2. Discretely ascertain interest rate levels if using debt
3. What are the effects of additional debt on the existing bank covenants and financial ratios
4. Complete takeover or just buying a business unit or division?

Negotiating

1. Examine the cashflow forecast of the target
2. Examine any documentation on outstanding loans
3. Existing pledges – Letter of Credit, Bank Guarantees, financial contracts, contingent liabilities
4. Outstanding debtors, creditors, taxes etc.

Closing

1. Detailing the bank accounts
2. Either merging the bank accounts or creating new accounts at the time of closing
3. Agreeing all bank balances and outstanding claims
4. Receiving detailed cashflow forecast for the first 2-3 months after closing date
5. Combining the new cashflows with the existing forecasts
6. Arrange any agreed financing

Integration

1. Close all existing facilities and services that will be no longer used
2. Ensure the new data is present in the book keeping system
3. All counterparties are informed of new bank accounts
4. All authorized personnel have access to new banking systems

Expert Udo Rademakers states:
The posting at gtnews.com  points out where treasurers could add value in M&A activities. Unfortunately, in too many cases, treasurers had been brought into M&A transactions rather late: at a stage where the acquisition already had been concluded and where the treasurer only gets involved in “getting the deal done”.

As pointed out in the article, this is often a missed chance for the company and also for the treasurer of not adding more strategic value. Apart from that, the sooner the treasurer gets on board, the better the company can prepare for this kind of rather complicated transactions. It enabled the treasurer as well to act on a tactical level in order to support the M&A transaction in a cost efficient and well documented way.

What strategic value could the Treasurer bring?

1. value the target company or the combined entity as a whole based on CF projection models
2. evaluate the capital mix (cash, debt, equity)
3. evaluate borrowing capacity/credit lines (low risk, best price)
4. evaluate the country risk
5. creating the funding flow overview and analyze this (timing of transactions)
6. evaluate credit- and forex risk (natural hedging possibilities, consider to pay as much as possible from     “restricted countries” in order to decrease your restrained cash)

If the treasurer has been on board for the strategic part, he is well informed and able to manage the tactical part systematical as soon as the effectuation of the transaction takes place.

The treasurer needs to arrange (if applicable):

1. temporary limit increase with banks
2. forex transactions (increase of in- and external limits if needed)
3. time critical payments to agencies, funding parties, seller, capital injections etc. : validate account information, prepare correct timing of the flow (cut off times, correct payment details and descriptions, etc.)
4. documenting of all transaction in a systematic way and liaise with all in- and external parties involved.

Especially in high demanding environments where one transaction takes place after the other, mistakes will be made and processes might not be well documented. Obviously this could lead to higher risk and additional costs and lots of additional (correcting) work afterwards. Having a well prepared, skilled treasurer on board could avoid this.

Hence the comparison with a superhero…

Conclusion

Involve the treasurer from the first step
Draw up a detailed project plan for M&A and ensure that it is signed off by Board of Directors
Implement project plan for every M&A
Identify all costs linked to M&A
Highlight any cost savings and/or efficiencies

 

Lionel Pavey

Cash Management and Treasury Specialist

 

 

 

Udo Rademakers

Independent Treasury Consultant & Interim Manager