Corporate Mergers and Acquisition and Treasury integration challenges

By Ganesh S | 4 November 2015

Merger and Acquisition (M&A) is an important and routine activity in any growing corporation.  According to a CEO survey conducted by PricewaterhouseCoopers, 54% of CEOs in the U.S. plan to complete an acquisition in 2015. Taking a global view, more than 8,500 deals have been announced to date and this number is expected to continue with the same momentum throughout the remainder of this year.

Even though these numbers indicate that a large number of M&A deals are taking place, the success rate of a merger or acquisition remains low at 50% with one of the contributing factors to a successful merger being proper and successful integration of newly acquired companies – at all levels.

As corporations expand through M&A they often find the integration process incredibly challenging with the first priority of senior management being the swift integration of the treasury function with the aim of taking control of cash flows.  Migrating the Treasury Management System (TMS) and changing over to the systems used by the corporate is also preferred but often not practical or achievable especially when the ERP/TMS systems differ. And in the case when they are the same software supplied by the same vendor, implementation differences still make this exercise onerous and in many cases, longer than anticipated.

The entire migration may take anywhere between 12, 24 or even 36 months depending on the levels of complexity. Due to legal and operational convenience corporations may indeed decide to run systems independently and try to integrate the financials at the corporate level only. This, however, involves manual transfer of files and excel sheets that can create errors not tolerated by the Board, regulators or the overall business.

Another commonly experienced challenge is consolidating banking relationships and switching the bank's subsidiaries to those used by the corporate entity. Each bank has their own unique formats and standards also differ from region to region.  Add to that the complexities of integrating and consuming multi-asset, multi-currency cash flows and complexities only increase.

Corporations that have an aggressive growth strategy through acquisition, quickly realise that by the time on-boarding of one subsidiary has been completed, another acquisition will require the process to start all over again.

Complex corporate structures – independent subsidiaries, business units, regional consolidation, etc. – will also present more challenges in creating a central hub that can link all the entities and create a unified view of available cash position – after all the nirvana of a corporate treasury function. Local corporate laws, rules and regulation have to be factored in when moving money. Standardising this process requires the appropriate use of applicable software and technology.

The diversity of a localised ERP systems’ payment formats within its corporate subsidiaries is one of the large remaining barriers to the implementation of a consolidated central treasury function to manage cash flow, payments and other types of data for reporting purposes. Furthermore, replacing all the subsidiaries’ ERP systems with a single platform is undeniably difficult due to the high level of capital and migration costs. It becomes a far more manageable challenge to consider the problem as a data integration or data management issue for central treasury, rather than a data migration one that requires replacing existing ERP systems.

So, is there a way to simplify the process of on-boarding systems and banking relationships when multiple subsidiaries are acquired by a corporation?

One of the first steps any corporation would be well advised to follow is a well-thought-out and rigorous data integration strategy.  Indeed, the benefits of doing so are plentiful.  In the long term, it saves time, effort and resources; it can reduce human intervention, which in turn reduces the risk of errors and furthermore, it allows senior management to focus on the business of being competitive in their marketplace.  Ultimately it affords the treasury function to function correctly by providing centralised cash management capabilities and a unified view. 

Before embarking on any integration M&A activity, heeding the following checklist can dramatically simplify and speed up the process:

1. Choose a data integration tool that is easy to use, does not involve a lot of programming, but is achievable more through configuration.

2. In selecting the tool, look for specific features such as:

a. Ease of use – tools may offer a variety of features, and similar to a television remote it may have features that are not necessarily used often. Can your business analyst or data analyst use the tool and how helpful is it?

b. Ability to handle multiple and ever-increasing numbers of financial message standards, formats, rules and regulations e.g. can the solution not just provide but also manage the industry standards every time the industry stipulates a change.

c. Ability to test the integration solution thoroughly before deployment to minimise operational exceptions

d. Ability to deploy in any infrastructure – avoiding additional cost and efforts to maintain additional infrastructure

3. A Solution which requires minimum customisation efforts when on-boarding banks. At a minimum such a solution should have the following features:

a. Ability to integrate multiple internal and external systems

b. Ability to see centralised cash positions

c. Validation of payment as per payment type

d. Warehouse for future payments – Cash flow forecasting

e. Entitlements to manage roles and functions within the entity

f. Business rules for routing to destination bank

g. Business rules to adjust debit and credit accounts

h. Four eye or six eye approval process for high value payments

i. Multiple office concept/s – regional offices, branch offices, independent subsidiary

j. Communication of status responses as per customer format

k. Search, Reporting and Management Information for charging and reconciliation 

l. Full audit for the history of each and every transaction for regulatory purposes.

m. Simple drilldown dashboards to represent a realtime status

A Treasury merger project that involves a well-thought-out and rigorous integration strategy using the above checklist ultimately enables cost reduction, affords productivity gains and enables treasurers to position themselves strategically ahead of any future M&A activity. Simply put, can any organisation afford the operational and reputational risks of not engaging a strategic integration tool? 

Example schematic of an ideal data integrated approach and on-boarding facility between corporate subsidiaries, corporate central treasury and the banks that service the corporate enterprise’s payment channels 

By Ganesh Srinivasan, Director of Financial Services Solutions, Volante Technologies 

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