Integrating an acquisition or merger presents a complex challenge for the treasury organization. It is therefore imperative that treasury has a clear plan as to how it wants to integrate a new company, as well as a solid understanding of the complexities that may arise during integration.

“What are the organizational issues? What are the governance issues? What processes and systems would need to be integrated? They need to have a strategy and vision around the combined company’s treasury environment,” said Eric Cohen, a principal at PricewaterhouseCoopers’ advisory practice.

Cohen advises treasurers to formulate a detailed transition plan outlining all of the key activities to be performed, including:

• What elements of banking infrastructure need to be changed?
• How will debt be managed?
• Is there a sound cash forecasting process in place?
• What are the critical organizational requirements to support the combined treasury function?

That last point becomes much more significant when a domestic company acquires a company with global operations, Cohen added. Overnight, the entire business model changes because activities in multiple countries now need to be managed. “That changes the dynamics of treasury significantly,” he said. “It typically requires operating more complex banking and liquidity structures, as well as additional capabilities that may have not have been in place before the transaction, such as currency risk management. The acquiring company may not have the skills to do that.”

Acquiring companies also need to determine what the banking structure is going to look like after the integration, noted Susan Hillman, founding partner with Treasury Alliance Group. There has to be a global banking plan in the works that would allow the company to merge and evolve its acquired companies in a way that makes sense for the entire organization. “Let’s have a vision for what banking is going to look like post-acquisition,” she said. “Adding accounts haphazardly makes it impossible to manage and takes longer for treasury to get its ducks in order.”

Even the best plans cannot prevent all surprises, according to one treasury manager. She and her group, along with accounting, have put together a checklist to create that initial plan. However, her team is learning as things come up. “In some situations, we find out things after the deal has closed,” she said. “In one acquisition we found accounts we didn’t know about. In another there was a company with merchant cards; that wasn’t initially on the list.” She added that most of their transactions are asset deals, so that also involves closing outstanding FX deals or loans before the deal is completed.

This article was excerpted from AFP’s Treasury in Practice guide, Treasury's Role in Mergers & Acquisitions, underwritten by KeyBank. Download the guide.