How do you assess the treasury risks and opportunities in a M&A deal?

2 Assess the treasury risks

During the due diligence phase, identify and quantify the treasury risks that may arise from the deal and devise ways to mitigate them. Currency risk, which is the exposure to fluctuations in exchange rates, especially in cross-border transactions or foreign operations, is one of the most common treasury risks. Interest rate risk, which is the impact of changes in interest rates on the cost of borrowing or investing and the valuation of assets and liabilities, is another. Counterparty risk, which is the possibility of default or non-performance by the other party in the deal or by financial institutions or intermediaries involved, must also be considered. Operational risk — the potential for disruptions, errors or fraud in treasury processes due to differences in policies between merging entities — should also be taken into account. Lastly, regulatory risk, which is the compliance with legal and tax requirements of relevant jurisdictions and changes in the regulatory environment that may affect the deal, must be considered.

3 Evaluate the treasury opportunities

Besides the risks, make sure to also assess the treasury opportunities that may arise from the deal and how to capitalize on them. Cash pooling, centralization, rationalization, integration and innovation are all common treasury opportunities. Cash pooling involves consolidating cash balances across different entities, accounts or currencies to optimize liquidity and reduce borrowing costs. Centralization involves streamlining treasury activities and functions, such as cash management, payments, collections, forecasting, hedging or reporting, to improve efficiency and control. Rationalization consists of simplifying the treasury structure and organization by reducing the number of bank accounts, legal entities, currencies or service providers to lower complexity and costs. Integration requires aligning the treasury policies and procedures of merging entities like cash flow forecasting, risk management, funding, investment or treasury accounting to ensure consistency and transparency. Innovation involves adopting new solutions, such as cloud-based platforms, automation, analytics or blockchain, in order to enhance treasury capabilities and performance.

4 Prepare a treasury integration plan

Once an assessment of the treasury risks and opportunities has been completed, a treasury integration plan should be prepared to outline the actions, timelines, resources and responsibilities for implementing the deal. This plan should include aspects related to governance, such as the definition of roles and authorities of the treasury team, stakeholders and external advisors, as well as communication and escalation channels. Additionally, it should cover transition tasks and activities during the pre-close and post-close phases of the deal. After the deal, stabilization of treasury performance and results should be monitored and evaluated by tracking KPIs and metrics, identifying issues or gaps and resolving them. Finally, optimization of treasury processes and systems should be continuously improved by standardizing best practices, leveraging economies of scale or exploring new opportunities.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?