FX Risk in M&A, Dashboards, Cash Forecasting, Treasury Org and Systems at Lively EuroTPG Meeting

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FX Risk in M&A, Dashboards, Cash Forecasting, Treasury Org and Systems at Lively EuroTPG Meeting

Thank you to the members who attended and led sessions at the EuroTPG 2017 H2 meeting in Bratislava on November 15-16. Following the roundup of projects and priorities, discussions ranged from an update on IFRS 9 hedge accounting and managing FX in M&A scenarios, both led by our sponsor Chatham Financial, to member demonstrations of dashboards and cash forecasting.
 
We also had lively interaction on the importance of investment in systems, what the optimal treasury organization should look like and dealing with sanctioned countries. Here are a few of the key takeaways from the meeting that you missed:
 
The earlier treasury gets involved in M&A transactions, the better. Cross-border M&A deals bring a whole host of risks that need to be managed by treasury through the entire process from announcement (or before) to closing and beyond, as the entity becomes fully integrated. Particular pain points for treasury include: timing; conditions for payment; guarantees; expectations for transitional services and associated agreements (TSAs and SLAs); and integration of cash management operations. Also, beware that disconnecting a business unit from its infrastructure to sell it may jeopardize its value and therefore the deal itself. 
 
The pros and cons of ways to cover sign-to-close risk. When the certainty of close is lower than senior managements’ rosy scenarios (almost always), a risk that rises further when a large player vies to take over another large player and anti-competition approval is required, it is not possible to hedge the deal without some disadvantages and added cost. FX forwards can become very large assets or liabilities over the course of their life and result in undesirable realized gain or loss if the deal does not go though, as can options, which otherwise may work better but come at a premium cost. 
 
Dashboards create visual alerts of required action. As more and more information becomes available in real- or near-real time, for example through daily bank reporting straight into ERPs, why should you stick to old-style spreadsheet-based reporting to make it actionable? Power BI, Tableau and other solutions offer opportunities to visualize the data in very customizable ways depending on who will use it and what they need for mission-critical decision making. Our presenting member demonstrated a QlikView- based “global cockpit” dashboard showing cash balances, bills to be paid, loans and credits (drawn and undrawn), and short-term investments to satisfy senior management’s queries on an overview level. 
 
Accurate cash forecasting requires discipline throughout the organization. After a large and highly levered acquisition, one member needs to keep very close tabs on cash forecasting to mobilize as much cash as possible to repay the debt over time (low or negative deposit rates emphasize this imperative further). Post-merger, there are very strong SLAs in place governing how money is to be spent and how subs request funds so as not to upset the short-term cash forecast. Same-day funding requests are not allowed, for example. Treasury closes the loop with forecasters to compare actuals with the forecast to ensure accuracy improvement over time. 
 
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