Tech20 Talks Tax Miracles, Zombies and Wizards, and FX Risk Policies
Tags: BNP Paribas, FX risk policy, M&A, tax reform, Tech20 2017 Annual Meeting, treasury transformation
The Tech20 Treasurers’ Peer Group met November 1-3 at Cavallo Point near San Francisco for its 2017 Annual Meeting. Returning sponsor BNP Paribas shared the latest on the bank’s strategy, telling members that the Americas and the tech sector remain priorities.
Following are some key takeaways:
• Solve my problem: help with formulating an FX risk policy. A member from China at a company without a full risk policy asked the group to help him with formalizing a policy for FX risk management. He noted that benchmarking revealed how tech firms varied between one without an FX hedging program and those with high-level sophistication in this area. Members advised him to consider carefully the FX risk management objective when setting policy. For revenue or earnings hedging, for example, he should consider to what extent analysts were focused on the FX impact and if a pro forma ex-currency reporting strategy could allow a lighter hedging touch. Over the long run, the currency impact on revenue or EPS can tend to even out and hedging is more a matter of appetite to ride out a cycle or not. New hedge accounting is also making it difficult to keep hedge gains and losses below the line and instead will hit the hedged item line. The final recommendation: try not to lock down all the details in the first go, since the policy needs will get further clarified as the FX program develops.
• Transforming treasury to follow the sun. A major tech company shared its dramatic overhaul of the treasury organization that aims to scale support for the business to super mega-cap size, including follow-the-sun coverage with new treasury centers in London and Singapore. This represents a departure from a tech treasury mindset that has tended to be entirely HQ centralized. Treasury leadership is also being divided into four functional ATs to develop centers of excellence for treasury operations, trading and investments, risk and strategy, and corporate finance. “Yet, we don’t want treasury to be carved up into silos so people will regularly migrate across,” said the AT presenting.
• Banks pulling out more stops to fund acquisitions. In a session spotlighting recent examples of acquisition finance, we learned of the advantageous terms members are negotiating. In one instance, a member got their then-M&A advisor to fund a bridge facility without draw or duration fees. In another, a member was able to hold the deal underwriters to their agreed fees despite changes to the financing mix as the deal evolved. The takeaway is that competition for new, highly desired customers, additional wallet from current, valued clients and bank balance sheets that have been finessed to function under today’s regulatory environment are changing the constrained nature of acquisition finance. It’s a sign of bank financing terms getting even friendlier in a credit cycle that’s long in the tooth. Capital markets are a positive contributor, too, as the money and demand is still there to take out any deals members might contemplate.
• A Christmas tax reform miracle, zombies and wizards. The group discussed the details of the House tax reform bill that arrived during the meeting, with the consensus being positive surprise at the level of detail. The motto “time kills all deals” applies here as more time will allow special interests to mobilize opposition to specific details in what is a generally favorable reform plan. A signing ceremony with Trump in front of the White House Christmas tree would take a miracle but that’s what may be needed to get a meaningful tax reform bill passed. Finally, you also missed a lively discussion of tax zombies that won’t die (the border adjustment tax); and why treasury needs to abandon any notions that tax departments are staffed by wizards who wield some sort of magic.
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