A few pointers from a NeuGroup peer group guest attendee who is busy in the M&A department.
A guest at a recent meeting of NeuGroup’s Tech20 Treasurers’ Peer Group (Tech20) shared lessons on maintaining high levels of treasury service to the organization through a continuous stream of integrations and separations. This guest’s company has been labeled a “serial acquirer” over the years, although it also executed some spin-offs.
One takeaway from the session was that this company would now be sorely tempted to grow more organically. With so many headaches and challenges with integrating acquisitions, it has been tempting to just decide to grow organically. However, since the rest of the organization will likely not heed that advice, treasury must soldier on.
And in that vein, it’s always easier for treasury to take on a mindset that M&A is a semi-permanent state of affairs. Therefore, M&A integration is not something a treasury can do “in its spare time” anymore. Members agreed that serial acquirers need a dedicated M&A integration team in treasury.
For entity acquisitions, this acquirer usually uses one of three approaches:
- Complete target entity liquidation and adoption of company systems as soon as possible;
- Maintain LE structure and operate as a standalone for a period of time;
- Adopt a Transition Services Agreement where the target operates “as-is” and then gets fully integrated.
One question that came up during the session was whether there is a smarter way than “FIFO-ing” the targets (i.e., who goes first)? It may seem logical to first integrate whatever was purchased first, but our guest is a proponent of an approach that, where cost is a value driver, integration efforts should be deployed as soon as possible; whereas in situations where the creative side drives the M&A, integration is vulnerable to knowledge loss and, therefore, tread carefully and integration can wait. “How can we communicate that we can [nativize] the corporate functions without jamming up the creative side that we bought?” he asks.
M&A is a recurring feature of the corporate world, on a more or less regular basis. In the tech sector, it seems more of a permanent way of life: many tech companies are serial acquirers, often in the form of many smaller acquisitions a year, of innovations and specialist technology. As such, treasury will be run over by the constant demands of integration work unless it (a) settles on a strategy for what to integrate first and how much, and (b) secures dedicated resources to tackle acquisition financing and integration. On the other hand, resources are stretched from regulatory compliance demands so there is also an overall staffing balance that needs to be struck.