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Growth of cross-border M&AOne of the notable M&A trends over thepast year has been the amount of cross-border activity, including a growingnumber of cross-regional transactions.More US companies are expanding intoEurope and Asia, but there is also agrowing two-way flow of transactionsbetween emerging and developed markets.According to Citi research, M&A in NorthAmerica increased by 18% during Q1, 2017,and 23% in Europe. New dealannouncements totalled $560bn during

this period. Similarly, a wide range ofindustries are engaging in cross-borderM&A, including manufacturing, consumerand healthcare and technology amongstmany others.What these figures do not reveal,

however, is that treasury functions havequite different experiences of M&A. Forsome, M&A will be a regular occurrence,with tried and tested playbooks to integratenew entities into treasury quickly. Forothers, transactions may be occasional, orthe size of a transaction may beunprecedented. There are differences in

Supporting TreasuryThrough the M&A JourneyBy Terry Dennis, Head of CashManagement Sales, EMEA,Treasury and Trade Solutions,Citi and Declan McGivern,Head of Treasury AdvisoryGroup, EMEA, Treasury andTrade Solutions, Citi

T he past year has seen particularly strong levels of mergers and acquisitions(M&A) as corporations across a wide range of industries seek to boostgrowth, fuelled by a combination of large cash reserves and low funding

costs. Treasury has a key role to play in the success of M&A transactions, fromfunding and monitoring acquisition flows upfront through to optimising liquidity,treasury operations and risk management in the longer term. In this article, TerryDennis and Declan McGivern discuss some of the factors that help treasurers tocontribute to M&A success.

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the nature of an M&A too: somecorporations will aim to rationalise andintegrate treasury operations, balances andexposures quickly, while others will chooseto operate treasury functions of acquiredbusinesses on a largely independent basisfor a period of time before undertaking anexercise to standardise, integrate andoptimise key activities across entities.

A structured approach to M&AInevitably, the opportunities, pitfalls andbanking needs will differ in each scenario.It is important that bank partners taketime to understand each company’sspecific requirements and provide expertadvisory services – whether they arehelping an acquiring or acquiredcompany. The nature of the support thatclients need will vary considerably.Companies who have never engaged in alarge M&A transaction before may need agreat deal of advice and support inidentifying and planning the tasks on thecritical path. In these situations,treasurers need their banks to offer adviceon due diligence, policy, governance andorganisational structures, including howbest to gain visibility, and ultimatelycontrol over funding, liquidity, exposuresand treasury operations.

Overcoming challengesOne of the biggest challenges for manytreasurers is that information on theacquired business is often limited,combined with the challenges of tightcompletion timescales. Speed and agility isessential in this situation, and treasurersneed to be confident that their bank canoffer an integrated, responsive service fordue diligence (including KYC) and accountopening, and to provide day one visibilityof cash, funding and liquidityrequirements.Similarly, M&A between organisations

that have quite different characteristics,such as a B2B vs B2C business model, cancreate challenges, particularly in areassuch as cash visibility, payments andcollections and aligning cultures. Cross-border transactions bring the addeddifficulty that the transaction may not takeplace in the corporation’s functionalcurrency; similarly, the acquired entitymay have quite different currencyexposures. At Citi, we help companies tohedge exposures to achieve certainty of the

actual closing price, and to understand anddevelop appropriate strategies to manage anew and potentially unfamiliar risk profile.Despite the wide range of M&A

scenarios, what characterises everytransaction is the need for a treasurystrategy that reflects the need to meetshort-term completion deadlines andlonger-term integration objectives.Consequently, at Citi, we have organisedour business to provide a structuredapproach to supporting clientsthroughout their M&A journey, takinginto account every step from pre-to post-closure and beyond, co-ordinated acrossall aspects of our business includingfunding, cash management, liquiditymanagement, foreign exchange andtechnology – whilst also aligning theresources required to assist with theactivities involved in each stage in theM&A Journey. (See Figure 1 on followingpage.).

The value of integrationThere are a number of situations wherecorporations continue to operate theacquired business as a discrete entity,which typically means that the treasuryfunctions continue to operate on a largelyindependent basis at least for a period oftime. This may be a deliberate strategy, orit may simply be a case that other prioritiestake over once treasury has concluded thetransaction and gained visibility over cash.While this makes the immediate post-closure period easier, in that there islimited disruption to existing treasuryactivities, longer-term difficulties can arise,particularly where a corporation goes on tomake further acquisitions. Firstly, even where treasury functions

operate independently, the treasurer andCFO still need a global view of liquidity, FXexposures and credit risk for groupreporting to regulators, shareholders,

Terry Dennis

Head of Cash Management Sales, EMEA, Treasury and Trade Solutions, Citi

Terry joined Citi in 1997 as an Associate in the Marketsbusiness, and subsequently went on to join Citi's GlobalLeadership Development Programme. In 2011, he joined theEMEA TTS Sales team focusing on cash managementopportunities for multinational corporate clients.Terry has a degree in Management from the University

of London, along with the Certificate in International CashManagement from the Association of Corporate Treasurers.

Declan McGivern

Head of Treasury Advisory Group, EMEA, Treasuryand Trade Solutions, Citi

Based in Dublin, Declan is responsible for leading thedelivery of advisory to Europe, Middle East and Africaclients in the areas of treasury operations, working capitalmanagement, risk mitigation, and treasury technology.During his seven years with Citi, he has also beenresponsible for product management of Citi’s TreasuryServices Group for treasury outsourcing services. Hisprevious experience includes positions in treasury consultancy and as Head of OffshoreRisk Management and Group Financial Controller at a major European bank.

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debtholders, credit rating agencies andmarket analysts. Consequently, thereneeds to be an efficient way of bringing thisdata together in a consistent way, whichrequires some standardisation.Secondly, maintaining separate treasury

functions – or combining treasuryfunctions and retaining existing bankrelationships, account and liquiditystructures – can lead to a proliferation andfragmentation of cash balances andinformation. Furthermore, somecompanies that have completed multipleM&A transactions have ended up with tensof banking relationships and hundreds ofaccounts, increasing the operational,liquidity and risk management challenges.To resolve these challenges, many

corporations, that did not integrate theirgroup treasury organisation initially, haveembarked on projects to consolidatebanks, accounts and liquidity structures,align treasury policies, processes andcontrols, and review treasuryorganisational structures and the systemsthey use for technology and platforms. Citican play a crucial role in this, as thanks toour global footprint, depth of solutions andadvisory capabilities we can be a regionalor global banking partner for the

consolidated business. With Citi’s help,treasurers are able to enhance operationalefficiency, increase visibility and controlover cash and risk, including streamliningconnectivity, reduce funding costs andcreate a platform on which to integratefuture acquisitions.

The strategic contribution of M&AWhile M&A’s relevance to a companyinevitably depends on its businessstrategy, it remains an important meansof delivering growth and shareholdervalue, so treasurers need to be prepared.During recent senior-level discussions ofmajor corporations, leading CEOsemphasised that the single highestpriority on which they wanted theirpartner banks to focus was supportingtheir M&A agenda. A recent McKinseyreport1 also reveals that more than half ofnew CEOs of S&P 400 companies embarkon an M&A transaction during their firsttwo years in office, second only tomanagement reorganisations. The samereport emphasises that those with aprogrammatic M&A strategy (i.e., three tofour deals per year) outperformed their

peers, achieving an average of 3%additional shareholder return.This creates significant demands on

treasury, in particular to create thefinancial and operational synergies andefficiencies that result in the value of atransaction becoming more than the sumof its parts. By taking a structured andrigorous approach both pre-and post-closure, that is tailored to the nature,purpose and objectives of thetransaction(s) and the longer-termstrategy of the enterprise, Citi isproactively supporting clients worldwide,on both sides of transactions, to achievestakeholder objectives and optimise M&Asuccess. �

Notes1 “A Deal-Making Strategy for New CEOs”, McKinseyQuarterly, April 2017. http://tiny.cc/ywohly

Fig 1 – Treasury Solutions for the M&A Journey

Funding – We canstructure an efficient on-and off-balance sheetinvestment solutionusing a variety ofinstruments to ensurethat cash is available tofund M&A whenrequired.

Visibility – We helptreasurers to improvevisibility over their cashand transactions usingonline bankingplatforms: CitiDirect BE®and CitiConnect®.

Control – We createsolutions to centralisefunds, enhance interestincome and reduce bankcosts.

Harmonisation – Wedevelop liquidity,payment/collection andtrade finance solutionsto optimise treasuryoperations and enhanceworking capital.

Integration – Wesupport treasurers instandardising bankconnectivity, fileformats, reconciliationand foreign currencypayments for a leanertreasury.

Source: Citi