To help gain operational efficiencies and attract more low-cost capital investments, some CDFIs are looking for mergers and acquisitions (M&A) opportunities. But merging two organizations is no easy task, especially for CDFIs.

Unique Treasury Considerations

Combining two CDFIs is a complex process, especially from a banking and treasury perspective. CDFIs may face distinct challenges in this area, such as:

• Limited access to new treasury technology as a result of these organizations’ mission-driven, cost-conscious cultures
• Atypical funding structures, such as New Markets Tax Credit, which can create unique account structures
• A lack of tailored solutions, as most other banks don’t have treasury management experts focused solely on community development

Despite these hurdles, diligence in early information gathering and planning can help CDFIs unlock value and cost synergies.

Gather Information on Both Organizations

To start the process, create a current state inventory for both organizations. This should include:

• Bank accounts
• Bank counterparties
• Authorized signatories
• System information
• Treasury workflow processes

Make sure to align the current states to your integration goal, which includes Day One control, visibility and long-term optimization projects. Then, document existing treasury structures, services and processes, including banking relationships, accounts and technologies.

Be sure to keep in mind the unique considerations that CDFIs have during M&As. For example, CDFIs usually have relationships with multiple banking institutions. Although these relationships maximize access to capital, they can cause inefficiencies in daily operations. Separate banking accounts often come with the stipulation that funds can’t be comingled, forcing CDFIs into stand-alone account structures that must be managed manually. The lack of automation makes it even more important to take a detailed approach to gathering information for both organizations.

Plan for a Successful Treasury Integration

Once you have an understanding of the current financial ecosystems of both organizations, you can take these next steps:

• Define treasury integration goals and timelines. You want to have account visibility and control on Day One. You should aim to integrate systems within three to six months and synergize processes within 12 months.
• Form enterprise-wide, cross-functional integration teams. Alongside treasury, you can also include accounting, finance, IT, payroll, human resources, legal and tax teams.
• Establish metrics to measure success. Key metrics can reveal insights into critical areas of your business and help you benchmark against your peers. For example, required operating liquidity is a good indicator of the cash level needed to manage the two merging companies. Cash application rate may highlight any reconciliation process or visibility concerns.

Implement Your Plan

Implementing your plan is easier said than done. Too often, treasury teams are left out of planning and must resolve issues after the deal is complete. To avoid these pitfalls, make sure treasury leaders are at the table early on, along with trusted third parties and bankers who have expertise integrating treasury operations for community development organizations.