Easing the M&A Integration Process: Treasury’s Role

A checklist to help treasury teams manage issues before and after a merger deal closes. 

Mergers and acquisitions present multinational corporations with a multitude of integration challenges, many involving treasury. So it helps organizations to have a systematic approach to managing issues including financing, banking and personnel when one company absorbs another. That was among the takeaways from a recent presentation at the spring meeting of NeuGroup’s Asia Treasury Peer Group in Singapore. Here are some of the key areas and actions highlighted by one AsiaTPG member who divided the topic into three parts: prior to day one of the combined company, day one, and the first 100 days.

Prior to day 1: Hedging. The presenter identified hedging the purchase price as essential in funding cross-border deals. He said that using FX options, including collars, can help protect against swings in FX rates during periods that can be as long as eight months. Yes, management might object to paying the premium, as it did once in the presenter’s career (at another company) during a multibillion-dollar deal. In that case the premium cost $10 million. That’s high, but a lot less than the $100 million swing in the cost between the deal’s announcement and closing date. Lesson learned. 

Prior to day 1: Tax and legal. Deciding which legal entities will survive a merger is part of the critical focus on exploiting synergies as two companies integrate. But changing legal entity names can take a long time in some Asian countries. The presenter also warned of problems and inefficiencies if tax and legal teams are brought into the integration discussion too late in the game. And service level agreements (SLAs) and transitional service agreements (TSAs) need to be in place to ensure audit compliance. 

Prior to day 1: Banking. Working capital bank credit facilities and related guarantees must be prepared and discussions with banking partners should begin before the deal closes, again with the goal of exploring synergies between the two companies. Updating bank account signatories can take longer than you think, and the presenter said there are two options: add names first and clean up the list later; or wait until there’s clarity and do a one-time set-up. Just be aware of any signatories who are leaving the combined company. 

Day 1: Communication. The goal on the first day of the new company’s life is for top management (including the CFO and the treasurer), department heads and regional leads to reach out to all stakeholders to welcome them, share company policies, schedule introductory meetings and establish parent company guarantees and support for credit facilities. 

The first 100 days: Make a bank implementation plan. Here are some of the key responsibilities for teams tasked with starting discussions with banks about integrating the financial institutions used by the acquiring company with those engaged by the acquired company, some of which may overlap. 

• Validate data: Make lists of bank accounts, bank signers, pooling structures and facilities limits.
• Update bank signers on these accounts.
• Update bank portal authorizers on these accounts.
• Update system administrators on the e-banking portals.
• Decide whether to integrate different e-banking portal IDs under a single corporate ID.
• Review pricing grids and harmonize bank fees.

The first 100 days: A consent letter from the acquired company. Due to bank secrecy laws, some banks will not release data of the acquired company to the acquirer’s treasury team.  The argument is that the acquirer’s treasury team has not been appointed by each of the acquired company’s directors as authorized individuals on the bank accounts. The work-around is for the acquired company to issue a letter of consent to the banks allowing them to provide the data to the acquirer’s treasury team.

The first 100 days: More stuff to do. Other items on the checklist include giving concrete instructions to any consulting firms hired to help with the integration. And internally, finance needs to check every working group to identify “treasury touchpoints.” There’s also agreeing on systems to retain or adopt, setting an organizational structure, aligning policies and identifying “quick wins.”

People issues. Many of the personnel issues that surface before, during and after mergers require treasury to answer questions. Here are some outlined by the presenter:

1. Who does what in terms of process? Is there a business continuity plan?
2. Do we have the right resources for the takeover to work in terms of competency and bandwidth? Do we have the integration expertise?
3. Who is leaving the combined company, will knowledge be lost, and who is taking over? How do we communicate this information?
4. How fast should integration take place to avoid disruptions to the business? 

Avoid pitfalls. Here are some recommendations to help treasury make integration smoother:

1. Don’t ignore that the acquired company may have some unique processes like manual signatories in certain cases.
2. Keep organized during the M&A integration, especially with old and new information. Keep access to legacy systems, repositories of data and knowledge learned.
3. Beware of prepayment penalties when the acquirer decides to prepay the target’s more expensive debt. 
4. Regarding FX, ensure the lines are in place, consider terminating existing trades and review the hedging strategy. 
5. Ask, “Who needs money now?” as you review intercompany loans, credit facilities and pool structures. 

Ask for help. Because many treasury departments are not staffed to handle complex integration projects, it’s essential for treasurers to seek support from other teams. This may mean delaying non-essential work done by treasury for other departments and enlisting other teams to complete tasks usually done by treasury that have fixed deadlines. If necessary, consider hiring temporary staff.