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Why the M&A Upsurge is a Boon for ZBB

  • By Mark O’Toole
  • Published: 11/4/2016

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There is a surprising link to the observation that “everyone gets 15 minutes of fame” and the world of treasury and cash management. After months of sluggishness, a recent uptick in M&A activity, could mean that zero based budgeting (ZBB) has its own moment in the spotlight. A form of budgeting which scrutinizes costs across every part of the business, ZBB often comes into its own in the wake of an M&A.

We saw M&A activity bounce back strongly in July and August—with a 54 percent increase in the number of deals with a disclosed value of more than $25 million completed. In the outcome of any acquisition, one of the first things corporates look to do is make savings wherever possible to budget for future years. Often the acquiring firm naturally looks to reassess budgeting to seek out any possible efficiency savings. And while it has always had a role to play, the drive to cut costs in the post of any M&A is exactly why ZBB should be getting some star treatment from group treasurers and financial directors right now.

ZBB ensures that c-level objectives can be implemented into the budgeting process, by tying them to specific functions of the business. This is increasingly important when an acquisition occurs, as costs inevitably need to be regrouped and measured differently to fall in line with new expectations. The trouble is that all this involves a realignment of processes and procedures that will be running on different systems, in some cases for a number of years.

Take the example of a successful food and beverage company with commodities trading and procurement. The firm in question, which may be ripe for a takeover, could be in a situation where the trading department is managing the physical contract buying along with the logistics of getting the commodity from A to B. The trouble is that risk management and hedging becomes challenging without a robust system in place to handle this type of scenario. Indeed, many firms have been running key processes on spreadsheets for the most part with a clear separation between trading and treasury. As a result, they simply haven’t had full transparency and a global view into the position and the real risk around it. And the same could be said for any commodity intensive corporation.

This is why there is increasing trend from firms embroiled in M&As to consolidate everything on one platform. From the ability to better enable capture of all their exposures, to supporting their operational and financial accounting needs, having everything in one place leads to improved transparency and better risk management. If M&A deals continue to rise, it is highly likely that firms considering ZBB may have a little more than just 15 minutes of fame. Those that look to rationalize their systems while getting visibility into ZBB, will ultimately be the ones to grab the limelight in the treasury and cash management world.

Mark O’Toole is vice president of commodities and treasury solutions for OpenLink.

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