BankingTreasury Management

Rough Road: Overcoming Post-Merger Integration Hurdles and Headaches

By October 21, 2021No Comments

Insights and lessons from two ATs who confronted challenges including culture and tight deadlines.
Low interest rates and plenty of cash on their balance sheets suggest large multinational companies will continue growing through M&A, challenging even experienced assistant treasurers (ATs) who tend to handle many finance-related integration issues.

  • Two ATs of companies at the tail end of mergers each recounted at a recent meeting the long list of projects they faced to integrate elements of the merging businesses, including treasury management systems (TMSs), funding sources, investment assets, and derivative and FX exposures.
  • ATs can lay the groundwork in some instances to facilitate such integrations in anticipation of future mergers, but the ATs presenting at the meeting noted the difficult-to-foresee hurdles that exacerbated the challenges.

Culture clash. In one merger, the acquiring company’s risk-averse culture contrasted sharply with the acquired firm’s lean, risk-taking, entrepreneurial approach. The acquirer’s resistance to change meant little review took place of which overlapping elements would be best to retain.

  • On day one, the acquired firm’s treasury team had to adopt all the acquirer’s policies and procedures. “We did not look at best-in-class,” the member said.
  • The few acquiree’s parts that were adopted by the merged company, such as the foreign exchange technology and the money market provider, took months to get approved and implemented.
  • “Never underestimate the power of different cultures,” the AT said. A peer echoed the AT’s culture insight, noting the contrast between his company’s “dictatorial” and centralized approach to the back office and a recent acquisition’s culture that gave more local autonomy.

Bank benefits. One bright spot: The acquiring company’s bank group included all of the acquiree’s banks, except for one, which it added to a new facility. From the perspective of overlapping banking relationships between the two companies the AT said the merger was a “marriage made in heaven.”

  • In many cases the companies were covered by the same bank teams, and when they weren’t the treasurer requested those relationship bankers be added to the account.
  • “So it was essentially seamless from a bank perspective,” the treasurer said.

Shotgun wedding. The other presenting AT’s company had to close a cross-border merger within literally weeks, due to regulations in the acquired company’s country, placing a significant burden on treasury.

  • The AT noted that most acquisitions provide teams on both sides with a “nice getting to know each other period” to accomplish significant planning before the deal closes.
    •  “But we weren’t able to speak to them, get any data, or do any of the really hardcore due diligence, besides what was publicly available,” the AT said.
  • Besides some quick changes, such as replacing the acquired company’s revolving credit facility with intercompany funding, many functions remain separate, such as their TMSs and enterprise resource planning (ERP) systems.
  • “One thing we did move forward with was notional pooling,” which neither company had in place, the AT said, adding that its rollout is still in progress but so far has provided “significant visibility and access to cash stored in pockets around the world.”

Lessons learned. NeuGroup’s Scott Flieger asked whether the ATs would have done things differently in hindsight. The AT who highlighted cultural differences said many of the acquired company’s treasury team had left; that might have been different if the acquirer made more effort to assess how both companies did things and then adopted the best of each.

  • Despite the short deadline to close the other merger, certain integration decisions probably could have been more deliberate, the AT said, so policy and accounting issues the treasury team now faces in areas such as the intercompany-funding structure may have been less onerous.
  • “Looking back that’s something to consider a lot more closely,” the member said.      
Justin Jones

Author Justin Jones

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