Is Your Treasury Organization Ready for an Acquisition?

Treasury due diligence is critical to achieving a clear understanding of both your treasury environment and that of your targets

Whether your business is contemplating or has already announced a merger or acquisition, it’s critical to review and evaluate all treasury-related details with due diligence. You may be aware that due diligence of a target is in process or has been completed; however, it doesn’t necessarily incorporate the details required by Treasury. Therefore, it’s important to proactively plan and strategize integration. Ensuring cash management environments are prepared for post-close success on day one will help mitigate many potentially critical problems—such as not being able to pay your staff or vendors, or not being set up to receive payments.

Ideally, businesses should be thinking about efficiency in their treasury systems all the time, making it easier to integrate with future plans. Even if you aren’t considering an acquisition today, consolidating and centralizing your internal systems will help streamline your infrastructure, making your business easier to manage and positioning yourself for future expansion through both acquisitions and organic growth.

Beginning Your Treasury Due Diligence

Due diligence is used to perform a comprehensive appraisal of both your and the target’s businesses in order to understand existing treasury structures and systems. An early treasury engagement allows for the opportunity to thoughtfully consider enterprise planning and change efforts.

As part of a due diligence process, there are some key strategic questions and answers that contribute to the development of your plan:

• What are management’s objectives for this acquisition?
• Will the target’s business fit within the existing business or be run separately?
• Who will the officers and signers of the new company be?
• What are management’s day one goals?
• Will you have a transition service agreement in place with your target?
• Are there specific expectations for Treasury?
• Is there a specific timeline regarding treasury changes?

Streamlining Data Collection

One of the biggest mistakes companies make in planning for an acquisition is not approaching data collection with discipline and intention. It’s not uncommon for the data collection process across your target to be decentralized. You might consider creating a template to help make sure nothing is missed. Whether it’s a spreadsheet or a checklist, you will need to have a system to collect data that’s organized, standardized and can be easily replicated.

Some key items to include on your checklist for evaluating your target are:

• Corporate structure
• Banking relationships
• Accounts
• Cash concentration diagrams
• Global treasury structures
• Systems and platforms (e.g., ERP, TMS, online portal)
• Credit facilities (e.g., overdrafts or trade finance facilities)
• Outstanding bank guarantees
• Standby and import letters of credit

Engaging Your Banking Partners

Whether there is overlap between your banks and that of the targets, or the target has treasury relationships with banks you don’t use, engage all banks by asking each for a relationship review. Solicit their assistance in reviewing and validating your current state. In addition to giving you a better view of your target’s treasury structure, this can help ensure continuity and mitigate discrepancies or misunderstandings, as well as make them aware of the transaction. Some terms are used differently by different banks, and disparities in understanding could impact future operations. For example, the target may have what they refer to as a lockbox account, but is this a physical lockbox or an electronic service? Leverage your bank’s resources to fully understand what’s meant by common terms.

It’s also important to pay attention to your target’s global footprint. Banking practices differ from country to country, adding greater complexity due to local regulatory requirements and language barriers. Seeking insight from a global bank can help your business navigate these complexities, ultimately finding efficiency across borders.

You don’t necessarily have to announce an acquisition before you start auditing and reviewing information with your banking partners or understanding how they might be able to assist you. Discussing hypothetical integration scenarios with your bank can be a valuable exercise and can help with future planning.

Ask for your banking partners’ expertise and insight on how other companies approach treasury integration, especially if you have many priorities and are unclear where to begin. When your banking partners understand your plans, they can help you execute. More importantly, they can provide guidance to aid your efforts.

The more you’re able to integrate treasury over time, the easier it will be to manage your transition—creating efficiencies to save you time and money. Confidently executing on mergers and acquisitions begins with due diligence.