Give treasury a bigger stake in merger integration: treasury departments are often brought in at the end of the merger process for tactical reasons. But early participation by treasury carries a number of important benefits, as does elevating its role in the overall merger practice.

Increased emphasis is appropriately being placed on the importance of treasury as a true "business partner" and "value adder" in a company. Treasury regularly has valuable input into the issues that impact a company's earnings and cash flow. Treasury's involvement is now considered indispensable in maintaining or improving a company's competitive position and market share, profitability, shareholder value, market liquidity and transfer pricing, among others.

The value these treasury services can bring to a company has elevated the function to the status of true equal with other core headquarter functions. However, this newfound prominence as a valued, decision support-team member has been slow to penetrate merger and acquisition activities.

This isn't to say that treasuries haven't been involved in merger integration, but their participation too often begins near the close of the transaction and is chiefly operational or tactical. Advisors are often called into situations only days before the final close of the merger or acquisition, when companies are still struggling to resolve questions such as: where is the cash, whose names should the bank accounts be in and at what institutions, have customers been notified of new payment instructions and what is the state of bank and treasury systems?

The nature and timing of these important questions sheds light on two very important issues: First, many treasuries are not involved early enough in the transaction; and second, while these issues are important, there are other issues of a far more strategic nature that can contribute greatly to the success of the M & A event that are not being focused on.

The intention here is not to analyze the political or cultural barriers in companies that have created this situation, or to determine if treasuries have been as aggressive as they should have been in inserting themselves into the process. A more productive approach is to focus on how to best integrate treasury into future merger, acquisition or spin-out activities to guarantee maximum efficiency and value. Once this value is better understood throughout the company, as well as by treasurers themselves, early inclusion of treasury into all these processes will be an obvious and routine part of the process.

Developing and implementing a strategic and value-oriented treasury plan into the overall merger integration process can be a complex process that needs to be customized company-by-company.

The Early Treasurer Catches The "Value"

The first "tenet" in treasury's planning for an integration event should be early inclusion into the planning process, which ensures a better chance that you can understand the structure, processes and culture of the acquired company's treasury and business processes. This means gaining control of or better understanding of areas in a company such as:

* cash and liquidity management

* banking relationships and credit

* treasury systems

* data gathering and management reporting capabilities

* controls, policies and procedures

* currency, interest rate and commodity risks

* cash flow forecasting

* treasury's organization, skills levels and staffing

* insurable risks and coverages

* business and pricing issues

The Four Quadrants of Treasury Merger Integration Value

While there is no denying treasury's responsibility as a tactical integrator of these areas, there should be an even greater focus on creating "synergistic value" through treasury efforts in the integration process. This process can be broken down into the "four quadrants of value:" 1) governance and control; 2) cost containment and savings; 3) process efficiency gains; and 4) human capital.

Governance and Control. One of treasury's first responsibilities here is to gain control of the acquired company's financial assets, as well as redirect the decision-making processes within treasury. Key actions include:

* Gain immediate visibility and control of the acquired company's cash, investments and banking activities.

* Identify and mitigate financial risk issues such as currency, interest rate, credit, commodity, etc.

* Identify and control all financial/treasury technology.

* Review, revise and integrate policies, procedures and Sarbanes-Oxley Section 404 documentation of the acquired company into the acquirer's.

Cost Containment and Savings. In almost all mergers and acquisitions, the ink on the deal is barely dry when "edicts" are issued for recommended areas of cost containment and savings. In the treasury space, savings can come from reduced banking fees due to consolidations, more efficient and combined treasury processes and staff reductions due to the combination or service outsourcing.

Generally, even greater savings can be found by treasury working with the business units in areas such as: better understand pricing formulas to measure the impact of market factors such as currency, supporting the redesign of the planning processes through more accurate cash flow forecasting methodologies and budget rate selection, and by treasury supporting the business side of the integration by acting as in-house consultant to business units to help evolve their issues that "touch" the treasury/financial space.

Process Efficiency Gains. Increased process efficiency will not only allow the treasury area to "run" more smoothly, but when properly thought-out and implemented, these changes can contribute to the savings discussed above. These efficiencies generally are unique to each company and the following represents steps to identify and achieve process efficiency:

* Immediately identify treasury liaison contact in acquired company treasury.

* Determine the optimal combined treasury organization's future state.

* Establish efficient data collection methods.

* Assess combined treasury's technology needs and perform "gap analysis" to determine additional technology and systems requirements.

Human Capital. Too often, the main focus is on the business integration itself, and the people element of these processes is ignored. Change creates insecurity in both the acquiree and the acquirer. Proper communication and discussion with key people during the process will potentially retain them at a time when their knowledge is crucial. Key early steps to be taken in this quadrant include:

* Conduct a treasury skills inventory, as well as a task/needs review.

* Quickly identify key "at risk" staff vital to the integrations success, including confidential discussions regarding their career path in the new organization.

* Communicate a clear plan to both companies' treasury staffs.

The pre/post-merger treasury process is complex and requires integration within the overall company's planning. The elements of the "four quadrants of value," when properly executed, can add value equally to both the future treasury organization and the company as a whole.

For that value to be realized, the company must perceive treasury as a value contributor and treat the treasury representatives as full partners, from both a responsibility and a knowledge-sharing perspective. Then, the value of treasury's involvement will be obvious, and the treasurer will have earned a permanent place at the merger integration table.

RELATED ARTICLE: take aways

* Treasuries have been involved in merger integration, but their participation too often begins near the close of the transaction and is chiefly operational or tactical.

* Companies should focus on how to best integrate treasury into future merger, acquisition or spin-out activities to guarantee maximum efficiency and value.

* Treasury's role in the M & A process has "four quadrants of value": 1) governance and control; 2) cost containment and savings; 3) process efficiency gains; 4) human capital.

Robert J. Baldoni ([e-mail]) is a New York-based partner at Ernst & Young and leads its Global Treasury Advisory Services Group. He can also be reached at 212. 773.5420.