Treasury Services

Using Data to Drive Treasury Synergies in Acquisitions

Applying metrics to identify treasury synergies can help your companies’ integration run more smoothly and efficiently.


Applying metrics to identify treasury synergies can help your companies’ integration run more smoothly and efficiently.

 

Your organization may be planning for or in the midst of a merger or acquisition. Amid all the competing priorities, it is critical to identify and execute upon opportunities that present synergies across products, markets and—most importantly—costs. Though often overlooked, treasury-related activities present integration opportunities, and it’s paramount they are considered early in planning. By thinking strategically with a focus on data and metrics, treasury can also deliver synergy benefits.

As you identify synergy opportunities, categorize them into key business themes:

Liquidity and Visibility

Vendors and Customers

Systems and Processes

The People Agenda

 

Use Metrics and Performance Indicators to Uncover Synergies

Start with data. Do both your company and the one being integrated use key performance indicators (KPIs)? If so, that’s a great place to begin: 

  • What are the KPIs and what do they measure? Are any in common across both companies? 
  • Do your KPIs effectively measure aspects of your treasury themes? If not, consider expanding the set of metrics you’re using.

Using this metric-driven approach, calculate metrics for each company and compare to the other. Analyze all aspects of both your model and theirs, including people, processes and technology. Where applicable, reach out to your trusted bank to gain insights, including benchmarking against best-in-class companies and peers. If you don’t have KPIs, your bank may also be able to help you establish a starting point for analysis.

Identify and document all opportunities to drive improvements, including effort, incremental cost and ongoing savings. Use that information to prioritize initiatives and develop your plan for integration and improvement both in the short- and long-term.

 

Liquidity and Visibility

A critical mission of treasury is managing liquidity. This means ensuring you have the most unified view of your global cash, can gain access efficiently and use it wisely for your enterprise.

Cash is a key lifeline of any business—important when times are turbulent or calm. Cash is always needed to keep operations and critical functions alive, and it’s an important lever for investment in efficiency and change. Companies should continually evaluate business needs and priorities, including those that impact liquidity.

The visibility and prudent management of your cash are especially critical when you are integrating two companies. Understand and analyze each company’s practices and processes, including:

  • How automated is your daily cash positioning and your forecast process?
  • How many inputs does it take for you to compile your daily cash position?
  • Is all your cash centralized in pooling structures? How many? Is it accessible in an automated way?

Analyzing these questions will help provide insights into your liquidity processes, allowing you to uncover specific areas of opportunity to drive improvements as you integrate, such as:

  • The enterprise resource planning (ERP) and treasury management system (TMS) technology available and how you can efficiently use them
  • Your banking providers’ technology and how it can integrate with your systems
  • The number of banking counterparties that support your business activities and the cash concentration mechanics

 

Vendors and Customers 

We already identified that treasury is responsible for the efficient use and processing of cash. In this context, how efficiently cash is being processed in from your customers and out to your vendors also has a long-term impact on costs. Combining two companies adds a layer of complexity when it comes to the relationships each company previously formed and the terms to which they have agreed.

When you benchmark and measure payable and collection efficiencies, consider the following:

  • Percentage of payments made within terms1
  • Percentage of credit sales collected within terms1
  • Percentage of payments (dollar value and volume) by settlement type
  • Percentage of collections (dollar value and volume) by settlement type

By better understanding the existing collection and payment processes, you can determine where best to spend time improving efficiency in payment terms and payment channel. Achieving efficiency when it comes to your counterparties might look like:

  • A more efficient supply chain to manage risk and the potential for increased competitiveness over pricing and terms
  • Opportunity for a more controlled and streamlined customer experience that covers a potentially broader product offering or larger market share

All of these might translate to:

  • Improved days payable outstanding (DPO), benefit of scale in vendor selection, pricing, payment method and terms
  • Improved days sales outstanding (DSO), reduced cost of invoicing and improved tracking and reconciliation

 

Systems and Processes

Your company’s internal technological infrastructure and the method in which tasks are carried out have a significant impact on how scalable and coordinated your business becomes. Depending on the modernization, or lack thereof, in your treasury, your procedures and technological landscape can be either a hindrance to growth or an enabler.

Metrics can help you gauge where the company stands today and where you want to be tomorrow. Start by examining:

  • Percentage of invoices sent to customers electronically1
  • Frequency of supplier payment runs1
  • Auto-cash application rate1
  • Number of bank counterparties and accounts integrated into a consolidated treasury structure

Making your treasury processes and systems efficient leads to improved integration of your treasury management to the business operations, such as sales and sourcing. It might also mean reduced costs, increased visibility of data and timeliness. Plus, you might find that there is a reduced bank-to-company integration effort. Adopting newer technologies and implementing streamlined processes can create value within your organization. Consider the fact that there is an opportunity cost associated with resisting change.

An acquisition or merger is an inflection point. It’s an opportunity to realign your combined treasury’s operational procedures and technology landscape to your new—or unchanged—organization-wide goals. Use these metrics to help gauge where your company stands today and where you want to be tomorrow.

 

The People Agenda

People are key to any M&A integration because enabling trust in the combined staff is paramount for productivity. That means looking beyond the number of employees in each department and analyzing employees’ roles, skillsets, team structures and daily tasks.

Company culture is also critical. Early on, work to shape the new company’s culture by establishing a workplace that emulates the value the company sees in its employees. This can be accomplished by implementing programs to advance employees’ careers. Creating a rewarding environment through fulfilling work will help you to integrate two workforces successfully.

When it comes to measuring this success, many aspects of employee management are intangible. While this makes it challenging to quantify employee satisfaction and the quality of workplace culture using KPIs, it’s still possible. Start by considering:

  • Employee satisfaction monitoring across multidimensional topics, such as degree of fulfillment in work and work-life balance
  • Headcount within teams aligned by roles, including rightsizing
  • Comprehensive goal-setting and performance management, including the extent to which working capital is part of your finance strategy

Diligently examining these areas can provide many benefits, including finding the best utilized headcount, better identifying employees’ skillsets and talent synergies, and improving organizational effectiveness.

A major part of successfully combining two workforces is communication. Your staff needs to know that management is listening. Give employees a platform to provide ongoing feedback so management is aware of the integration’s impact on them.

 

Support Your Company’s Growth

The time is now for treasury to drive meaningful synergies at your company. Your business insights, disciplines and accountabilities support your company’s critical foundational activities. Continue being the business’ trusted internal partner and support the strategic change upon which your company is embarking. Analyze and apply data to identify synergies and drive efficient integration. While it won’t be easy or immediate, it will create a solid foundation for growth.

 

1. 2019 Hackett Benchmarking Study, The Hackett Group, 2019.
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