How CFOs Can Make Their Post-M&A Treasury Operations More Efficient
Contents:
M&A activity is picking up, and more companies in North America will potentially be looking for ways to integrate new employees, business lines and systems as quickly as possible.
Mid-market privately held companies should be prepared for buyers to approach, as consultants PwC
believe that a broader rebound in dealmaking is at hand.
Indeed, Warren Estey, Head of Investment Banking at BMO Capital Markets, is optimistic that M&A will pick up. “The headwinds that curbed dealmaking in '22 and '23—whether it was the rapid increase in borrowing costs, recession concerns, declines in equity markets—all of those have eased,” he said on an episode of the Markets Plus podcast .
Leaning on financial partners to help establish cash management strategies
Change can be disruptive, but it can also lead to new opportunities. Acquisition financing and deal closing are of course areas where the role of a bank looms large for finance departments during M&As. Yet there are also cash management and banking priorities that you should consider as important parts of achieving a successful outcome.
For CFOs and corporate treasurers, the prospect of an acquisition is an opportunity to anticipate strategic change and to work in concert with your financial partners to optimize cash management strategies.
Even the most experienced CFOs can benefit from getting more out of their banking relationships. This article will focus on how finance leaders either going through an acquisition or planning one can lean on their banks to help ensure a smooth integration and post-merger day one readiness.
Not only can preparation help your treasury teams remain effective during an integration, but it can also help them emerge as a much more streamlined and stronger operation.
Four questions to consider
Realizing those benefits starts with asking the following:
-
Are your banking relationships strategically aligned with the business’ needs?
-
Do your banks’ capabilities fit with the company’s direction?
-
How do you plan to align newly added treasury teams with your systems and processes?
-
How will the acquisition change your business operating model?
Let’s look at why these questions are important and how to approach them.
Are your banking relationships strategically aligned with your business’ needs?
If you’re planning to acquire another business or have recently done so, you’ll want to consider consolidating banks and/or centralizing your banking relationship.
For example, a U.S.-based company is buying a Canadian firm, and its treasury team’s priority is to integrate operations as quickly as possible. However, if both companies use different banks, that could be a source of additional costs, time to integrate, and operational risk. Having financial data on two ERM systems or platforms increases the risk of hardware failure and maintenance costs over time. Jumping between systems also carries a high risk of error, not to mention potentially jeopardizing the U.S. company’s integration timelines.
Streamlining banking relationships following an acquisition can help. In addition to eliminating duplicative costs, it can potentially provide a better line of sight on your financial data. Consolidating banks can also reduce the inefficiencies that come with working with multiple banking partners, such as having to work with and brief similar teams in multiple financial institutions.
Your banking relationships should enable you to be more strategic, and not just transactional. That’s why it's highly beneficial to have a primary bank that understands the needs of your combined company and can offer strategic guidance to help ensure a successful and efficient integration.
Do your banks’ capabilities fit with your company’s direction?
Planning an acquisition is usually part of a broader expansion and potential business diversification strategy. You’ll want a bank that can keep up with your business and make sure its capabilities fit with your company’s direction.
For example: How long is the process to open a commercial account at your bank? How efficient is the process? Does your provider have commercial banking expertise in your local markets, particularly in your industry? These are questions to consider as your company makes acquisitions.
Ensuring that kind of alignment means looking beyond a bank’s product offerings. Instead, choose a bank that’s committed to aligning their offerings with your strategy. Sharing your strategy and future plans with your financial partner can provide your bank with the information they need to assemble a suite of products that fit your business’ requirements, and to make adjustments as needed in the future.
How do you plan to align newly added treasury teams with your systems and processes?
This question is as much about people as it is about platforms.
Onboarding an acquisition may mean inheriting a finance or treasury department. Migrating people to your same platform is about strategy as well as tactics. Whether your company aims to centralize treasury functions in one place or operate with autonomous teams, the focus should be on aligning new teams with your company’s processes.
Your bank should be willing to help. A strong financial partner should be able to help new teams gain access to platforms quickly and efficiently.
Along with integrating the parent company’s accounts payable systems into the acquired company’s operations, a bank should provide training and support on everything from budgeting to cash flow forecasting.
Take a scenario where a U.S. company acquires a Canadian-based firm. Ideally, the U.S. company’s primary bank would offer multiple training channels to support employees of the Canadian firm through videos, online sessions, and personalized training on demand.
A bank should also understand how the parent company operates internally and how they serve their customers’ needs. A training process isn’t just about how to use the accounts payable system, it’s about how to use that system in the context of the company’s overall strategy.
How will the acquisition change your operating model and, therefore, banking requirements?
Whether your company is focused on growth by acquisition through several small deals, or a company going through a transformational merger, you’ll experience an impact on your operating model, whether incrementally or all at once.
Similarly, cross-border deals often have significant impact on treasury operations. If the acquisition is an opportunity for U.S.-Canada cross-border expansion, your financial partner can help structure trade finance tools to help streamline your operations and mitigate risk.
Let’s use the example of U.S.-based Company A acquiring Canada-based Company B. If Company A's primary bank has North American capabilities, that will enable the combined business to bank seamlessly via one platform. The new company will benefit from maintaining a single view of all accounts on both sides of the border, implementing consistent controls around user access and payment approvals, and managing one workflow for reconciliation processes.
Your bank should also be able to provide access to the modern platforms you need to run your treasury functions efficiently in both the U.S. and Canada. That includes working with a bank that offers Real-Time Rail payments on both sides of the border.
Making sure your cross-border operations run effectively could also require upgrading your ERP system, exploring whether you should adopt the ISO 20022 standard into your treasury systems, and determining whether the expansion will create inefficiencies. Ideally, your bank would provide the guidance, solutions and cross-border expertise you need to resolve these matters.
Focus on strategy, not products
The most effective cash management doesn’t happen when businesses select products from their bank based on operational needs. It comes from aligning the tools they offer with the strategic guidance they can provide—even more so after an acquisition.
Centralizing your banking relationship to an experienced commercial provider can help you execute a more seamless integration while positioning your business for future opportunities.
Justin Boisvert, Managing Director, Strategic Sales & Operations, Treasury & Payment Solutions (TPS); Tina Tsoukatos, Director, TPS; and Charles Matu, Director, TPS contributed to this article.
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Oscar Johnson
U.S. Head of Commercial Sales for Treasury and Payment Solutions
Oscar is the U.S. Head of Commercial Sales for Treasury and Payment Solutions for BMO Commercial Bank. His group is responsible for providing cash management, …(..)
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Patty Weitzman
Head, Financial Sponsors, U.S. Commercial Bank
Patty Weitzman is the Head of Financial Sponsors for Commercial Bank, U.S. She joined BMO in 2017, bringing with her extensive experience in leveraged lending and t…(..)
View Full Profile >Contents:
M&A activity is picking up, and more companies in North America will potentially be looking for ways to integrate new employees, business lines and systems as quickly as possible.
Mid-market privately held companies should be prepared for buyers to approach, as consultants PwC believe that a broader rebound in dealmaking is at hand.
Indeed, Warren Estey, Head of Investment Banking at BMO Capital Markets, is optimistic that M&A will pick up. “The headwinds that curbed dealmaking in '22 and '23—whether it was the rapid increase in borrowing costs, recession concerns, declines in equity markets—all of those have eased,” he said on an episode of the Markets Plus podcast .
Leaning on financial partners to help establish cash management strategies
Change can be disruptive, but it can also lead to new opportunities. Acquisition financing and deal closing are of course areas where the role of a bank looms large for finance departments during M&As. Yet there are also cash management and banking priorities that you should consider as important parts of achieving a successful outcome.
For CFOs and corporate treasurers, the prospect of an acquisition is an opportunity to anticipate strategic change and to work in concert with your financial partners to optimize cash management strategies.
Even the most experienced CFOs can benefit from getting more out of their banking relationships. This article will focus on how finance leaders either going through an acquisition or planning one can lean on their banks to help ensure a smooth integration and post-merger day one readiness.
Not only can preparation help your treasury teams remain effective during an integration, but it can also help them emerge as a much more streamlined and stronger operation.
Four questions to consider
Realizing those benefits starts with asking the following:
-
Are your banking relationships strategically aligned with the business’ needs?
-
Do your banks’ capabilities fit with the company’s direction?
-
How do you plan to align newly added treasury teams with your systems and processes?
-
How will the acquisition change your business operating model?
Let’s look at why these questions are important and how to approach them.
Are your banking relationships strategically aligned with your business’ needs?
If you’re planning to acquire another business or have recently done so, you’ll want to consider consolidating banks and/or centralizing your banking relationship.
For example, a U.S.-based company is buying a Canadian firm, and its treasury team’s priority is to integrate operations as quickly as possible. However, if both companies use different banks, that could be a source of additional costs, time to integrate, and operational risk. Having financial data on two ERM systems or platforms increases the risk of hardware failure and maintenance costs over time. Jumping between systems also carries a high risk of error, not to mention potentially jeopardizing the U.S. company’s integration timelines.
Streamlining banking relationships following an acquisition can help. In addition to eliminating duplicative costs, it can potentially provide a better line of sight on your financial data. Consolidating banks can also reduce the inefficiencies that come with working with multiple banking partners, such as having to work with and brief similar teams in multiple financial institutions.
Your banking relationships should enable you to be more strategic, and not just transactional. That’s why it's highly beneficial to have a primary bank that understands the needs of your combined company and can offer strategic guidance to help ensure a successful and efficient integration.
Do your banks’ capabilities fit with your company’s direction?
Planning an acquisition is usually part of a broader expansion and potential business diversification strategy. You’ll want a bank that can keep up with your business and make sure its capabilities fit with your company’s direction.
For example: How long is the process to open a commercial account at your bank? How efficient is the process? Does your provider have commercial banking expertise in your local markets, particularly in your industry? These are questions to consider as your company makes acquisitions.
Ensuring that kind of alignment means looking beyond a bank’s product offerings. Instead, choose a bank that’s committed to aligning their offerings with your strategy. Sharing your strategy and future plans with your financial partner can provide your bank with the information they need to assemble a suite of products that fit your business’ requirements, and to make adjustments as needed in the future.
How do you plan to align newly added treasury teams with your systems and processes?
This question is as much about people as it is about platforms.
Onboarding an acquisition may mean inheriting a finance or treasury department. Migrating people to your same platform is about strategy as well as tactics. Whether your company aims to centralize treasury functions in one place or operate with autonomous teams, the focus should be on aligning new teams with your company’s processes.
Your bank should be willing to help. A strong financial partner should be able to help new teams gain access to platforms quickly and efficiently.
Along with integrating the parent company’s accounts payable systems into the acquired company’s operations, a bank should provide training and support on everything from budgeting to cash flow forecasting.
Take a scenario where a U.S. company acquires a Canadian-based firm. Ideally, the U.S. company’s primary bank would offer multiple training channels to support employees of the Canadian firm through videos, online sessions, and personalized training on demand.
A bank should also understand how the parent company operates internally and how they serve their customers’ needs. A training process isn’t just about how to use the accounts payable system, it’s about how to use that system in the context of the company’s overall strategy.
How will the acquisition change your operating model and, therefore, banking requirements?
Whether your company is focused on growth by acquisition through several small deals, or a company going through a transformational merger, you’ll experience an impact on your operating model, whether incrementally or all at once.
Similarly, cross-border deals often have significant impact on treasury operations. If the acquisition is an opportunity for U.S.-Canada cross-border expansion, your financial partner can help structure trade finance tools to help streamline your operations and mitigate risk.
Let’s use the example of U.S.-based Company A acquiring Canada-based Company B. If Company A's primary bank has North American capabilities, that will enable the combined business to bank seamlessly via one platform. The new company will benefit from maintaining a single view of all accounts on both sides of the border, implementing consistent controls around user access and payment approvals, and managing one workflow for reconciliation processes.
Your bank should also be able to provide access to the modern platforms you need to run your treasury functions efficiently in both the U.S. and Canada. That includes working with a bank that offers Real-Time Rail payments on both sides of the border.
Making sure your cross-border operations run effectively could also require upgrading your ERP system, exploring whether you should adopt the ISO 20022 standard into your treasury systems, and determining whether the expansion will create inefficiencies. Ideally, your bank would provide the guidance, solutions and cross-border expertise you need to resolve these matters.
Focus on strategy, not products
The most effective cash management doesn’t happen when businesses select products from their bank based on operational needs. It comes from aligning the tools they offer with the strategic guidance they can provide—even more so after an acquisition.
Centralizing your banking relationship to an experienced commercial provider can help you execute a more seamless integration while positioning your business for future opportunities.
Justin Boisvert, Managing Director, Strategic Sales & Operations, Treasury & Payment Solutions (TPS); Tina Tsoukatos, Director, TPS; and Charles Matu, Director, TPS contributed to this article.
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