Integrating an acquisition or merger is one of treasury’s greatest challenges. It includes overhauling banking structure, cash, debt and capital structure, and reviewing all bank relationships. So it’s imperative that treasury get involved early in the M&A process and provide a vision for the new entity.
AFP’s new Treasury in Practice guide, Treasury's Role in Mergers & Acquisitions, underwritten by KeyBank, identifies key insights for treasurers to maximize their critical role in the M&A process. Often, treasury becomes involved in M&A late in the game—but the new guide points out a number of reasons why that approach is typically a misstep.
- Treasury can add value even before a specific deal is considered by looking at growth via acquisition in the context of the company’s capital structure.
- Early involvement is key to keeping treasury close during the planning stage. “If you plan well, the execution and integration go so much better,” one treasurer said. “Don’t promise anything related to the purchase price before talking to treasury.”
- Ideally, get treasury involved in the due diligence stage so it can be aware of the integration challenges ahead, particularly if there’s debt involved.
- Consider the breakup fees of multiple credit facilities.
- Calculate resulting ratios, such as debt to EBIDTA, to assess impact on credit ratings and bank covenants.
- Getting involved early is particularly important when there’s a foreign currency involved; ideally, treasury is called in at the letter of intent phase.
Coming late to the deal means treasury often misses the due diligence stage and with it an opportunity to add substantial value to the deal. It’s important to understand the value drivers of the transaction to help shape the integration plan, according to Ken Gavrity, director of product and innovation at KeyBank. “Whether it’s a deal to increase product distribution, consolidate operations, or enter new markets, understanding the end goal is critical to avoid missteps along the way, and empowers your team to help solve problems.”
Download Treasury's Role in Mergers & Acquisitions here.