Deal-making is high on the global agenda. In the US, inbound M&A hit an all-time peak of $586.7 billion in 2016, a 35.15 percent hike from 2015 (ref: Bloomberg), and although activity is expected to drop slightly, the change in administration hasn’t had marked effect as yet. In the UK, M&A activity has hit post-2008 levels – and a total of 25 deals totalling $24bn have been in the works so far this year.
This is prompting a re-evaluation of the role of the treasurer in this kind of strategic corporate activity, or at least it should be. Traditionally, the focus has been on preparing information for the C-suite and the Board, and then integrating systems and processes after the decision has been made. The issue is, often the information that the Board is making decisions from, for example in the annual capital allocation process, is wrong.
The Corporate Risk team at McKinsey identified this problem some years ago at large commodity intensive corporates (those that have significant exposure to raw materials in their supply chain or finished goods), and ran a ‘Cash Flow at Risk’ roadshow to the Boards of over 20 global companies. Similarly, OpenLink has witnessed forward-thinking and innovative treasurers starting to take steps to redress the problem, bringing the management of treasury and commodity procurement together to have far richer information at their disposal.
Not only does a combined approach to these functions enable much smarter management of currency and commodity price volatility (which is a major advantage in and of itself), but it also lays the foundations for a much more strategic role from the treasurer.
Treasurers can shift their focus towards the annual capital allocation process, and earnings, cash flow and capital at risk. Too many Boards are making decisions on inaccurate data because the supporting technology isn’t able to provide the full picture. We’re talking about optimising the organisation’s balance sheet. That means better management of credit risk – and therefore – critically – better access to capital.
That’s where things get interesting. Suddenly that catapults the role of the treasurer from risk manager, to business change enabler, providing critical information to the Board. It moves the mind-set (and investment motives) beyond just compliance, cost, and technology. With better access to capital, the Board has greater freedom to make corporate decisions regarding M&A activity, regional expansion or product diversification. Rather than being reactive, it gives companies the best possible chance to be proactive. For ambitious companies with expansion in their sights, this is a must. And the treasurer that opens this door is truly aligning themselves to the needs of the CFO. They’ll be a superhero.