Treasury Management: Continued M&A Activity in Tech Shows Treasury On the Ball

With M&A action continuing to heat up it’s a sure bet treasury has been in the strategic mix.

The masters of the M&A universe continue to shuffle the cards. Last week saw Dell offering big dollars for storage company 3PAR. This week, H-P entered that fray by countering Dell’s offer. While this and other deals means that companies are taking advantage of low financing rates and the cash in their coffers, it also likely means that corporate treasuries have been busy with a lot of preparation.

That treasury is becoming ever more involved in strategy was evident in an April 2010 pre-meeting survey of The NeuGroup’s Tech20 Treasurers’ peer group. The survey revealed that treasury has been in increasing contact with the Board, mainly to discuss capital structure as well as maintaining the flexibility in that structure to support future acquisitions.

So with the latest slew of deals, it’s a good bet that treasury has been working hand in hand with corporate strategic planners as they scan the marketplace for acquisitions. If not, they should be. This is because, as also revealed in later Tech20 meeting discussions, treasury is able to offer the analytical rigor needed to support corporate strategy decisions and optimize any resulting plan’s implementation (see related story here). For example, treasury’s acumen in free-cash-flow generation analysis, bond math, and risk-based thinking can add tremendous value as strategic planners chart their course for potential acquisitions, their valuations and optimal financing.

Strategic thinking about tactical execution
Being exceptional at tactical execution of strategy is an important job for treasury, too. In things like acquisitions, treasury’s role in the timely integration of the target’s finance infrastructure can go a long way to ensuring the success of the acquisition (see related story here). When Tech20 treasurers met in late April, they had hints of a busy M&A season to come. Accordingly, acquisition prep weighed heavily on their minds. And even as far back as February, one treasury manager expressed to International Treasurer his concern that acquisitions “are about to ramp up again and treasury won’t be prepared.” (See story here.) This manager had a few suggestions for once the deal is a go:

1. Make sure you have a list of all bank accounts and have a way to cross reference them.
2. Get control of bank accounts quickly and deal with legacy signatories.
3. Maintain a congenial relationship with the target’s banking partners, knowing that you could be closing down those relationships.
4. Maintain a good working relationship with the acquired company’s employees. Face to face meetings go a long way. Don’t forget you need their help.
5. Establish good working relationships with the teams in your own company you will need to rely on, such as tax, payroll, accounts payable and accounts receivable.

Even with a bidding war going, like the one between Dell and H-P over 3PAR, it’s likely some of the above could be taking place behind the scenes. A proactive treasury will be thinking ahead to make sure that if its company prevails, the integration will go smoothly enough to justify its winning bid.