The treasury function plays a pivotal role in the success of mergers and acquisitions (M&A). From initial planning to post-transaction integration, treasury ensures financial stability, manages risks, and optimizes cash flows. This guide outlines how the treasury department drives success in M&A transactions.

1. Pre-Deal Preparation and Planning

• Financial Analysis: Conduct thorough due diligence to assess the target company’s financial health, including liquidity, debt levels, and cash flow.
• Valuation Support: Assist in determining the target’s fair value by analyzing financial statements and projecting future cash flows.
• Funding Strategy: Develop a comprehensive strategy for financing the deal, considering options such as cash reserves, debt issuance, or equity financing.

2. Risk Management

• Foreign Exchange Risk: Manage currency risks for cross-border transactions using hedging instruments such as forwards, options, or swaps.
• Interest Rate Risk: Mitigate interest rate fluctuations on financing costs through interest rate hedging strategies.
• Credit Risk: Assess the target’s creditworthiness and potential changes in the combined entity’s credit profile.

3. Funding and Capital Structure

• Optimal Capital Structure: Determine the ideal mix of debt and equity, balancing cost and risk.
• Debt Issuance: Manage the issuance process if debt financing is used, including selecting underwriters, setting terms, and ensuring regulatory compliance.
• Equity Financing: For equity financing, work on issuing new shares if necessary and coordinate with investment banks and legal advisors.

4. Cash Management

• Cash Flow Forecasting: Develop forecasts to ensure sufficient liquidity for transaction-related expenses and operational needs.
• Liquidity Management: Optimize liquidity by managing cash reserves and short-term investments.
• Integration of Cash Systems: Integrate cash management systems of acquiring and target companies for seamless cash flow post-acquisition.

5. Post-Deal Integration

• Consolidation of Financial Systems: Integrate financial systems, processes, and controls for consistency and accuracy in reporting.
• Synergy Realization: Track and manage realization of synergies, such as cost savings and revenue enhancements.
• Debt Management: Develop a plan for managing and servicing debt, including potential refinancing.

6. Regulatory Compliance and Reporting

• Regulatory Filings: Complete necessary regulatory filings and disclosures required by financial authorities.
• Compliance Monitoring: Monitor adherence to covenants and legal requirements associated with financing arrangements.
• Stakeholder Communication: Provide accurate and timely financial information to investors, regulators, and credit rating agencies.

7. Enhancing Shareholder Value

• Value Creation: Ensure the financial aspects of the deal align with strategic objectives and create long-term shareholder value.
• Performance Measurement: Implement metrics and KPIs to measure financial performance and track integration success.
• Strategic Guidance: Provide financial guidance to senior management, navigating challenges and seizing opportunities.