A Thomson Reuters survey of CFOs reveals global M&A activity will pick up in 2011; what should treasury be doing?
It’s not quite to pre-crisis levels but CFOs expect a big rise in M&A activity in 2011. Mergers and acquisitions are expected to jump 36 percent next year to $3 trillion, according to a survey by Thomson Reuters and Freeman Consulting Services. With low borrowing rates and lots of cash on hand, corporate treasury was probably expecting this to happen. Nonetheless, it’s always a good idea to make sure the company’s finances are ready for when the M&A decision arises.
Judging by discussions from recent NeuGroup peer group meetings as well topic polling ahead of meetings for spring 2011, it appears treasurers are getting ready. Whether by region, by function or just general treasury, many peer groups within The NeuGroup universe are signaling a big interest in talking about M&A. In these discussions, peer group members said they were looking to acquire in emerging markets to get a better foothold in these regions as well as looking for “bolt-on” acquisitions that enhance their bottom line and market position. In the Thomson survey, this was also revealed to be the case. Across all industries most respondents said “competitive strategy” was a driving force in M&A; also, the “most compelling” areas for M&A were developing and developed Asia.
Also of interest for NeuGroup peer groups are the various post-merger closing and integration activities that need to start even as the ink is drying on the deal. For example, members of The NeuGroup’s Latin American Treasury Managers Peer Group will consider best practices of merger integrations at their winter 2011 meeting, sponsored by BBVA. Similarly, The NeuGroup’s Engineering & Construction Treasurers’ Peer Group is interested in discussing best practices on efficiently going through the integration process from start to finish at its next meeting.
And once the decision is made to merge or acquire, what should treasurers do? From previous peer group meeting discussions over the past year or so, treasurers should, among other things, think banking first. This means obtaining a list of all acquisition bank accounts and having a way to cross-reference them. They also should try to get control of bank accounts quickly and deal with legacy signatories. They should also maintain a congenial relationship with the target’s banking partners, even while knowing that they could be closing down those relationships (see related story here).
The main idea is to be ready to act as the competition likely will be stiff, particularly with the Chinese, who, according to a recent article in The Economist, are on a global shopping spree.