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Financial Accounting Advisory Services
Treasury services for corporate transactions October 2015
Page 2 Financial Accounting Advisory Services | Treasury services for corporate transactions
Agenda 1
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Treasury services for corporate transactions
The big picture
The M&A journey — where are you?
Treasury challenges in M&A transactions
How we can help at each phase of the transaction
Why EY?
About EY
Contacts
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Page 3 Financial Accounting Advisory Services | Treasury services for corporate transactions
Treasury services for corporate transactions
Page 4 Financial Accounting Advisory Services | Treasury services for corporate transactions
The big picture
► M&A ranks top on boardroom agendas, with 56%1 of senior executives expecting to pursue acquisitions in the next 12 months.
► 30% of M&A transactions over the next year are outside the domestic market and 54%1 in countries close to home.
► The treasurer’s role is expanding to respond to the significant level of unplanned but integral involvement required of them.
► Treasury involvement in M&A is critical to obtaining synergistic value and reducing risk of failure, due to the complexity of cross-border transactions.
56% of companies expect to pursue acquisitions in the next 12 months1
M&A integration failure rates are
estimated at 66%–75%2
Source:
1 Global Capital Confidence Barometer, EY, 2015
2. Rising Expectations for M&A in 2014, J.P.Morgan, 2014
Page 5 Financial Accounting Advisory Services | Treasury services for corporate transactions
What are the main challenges to your M&A strategy?
An EY survey of senior executives has identified internal resources and capabilities to execute and integrate a deal as key challenges over the next 12 months:
► Internal M&A and integration resources are the main challenges to companies’ M&A strategy. ► Funding, quality and number of opportunities, and competition for assets, are still concerns.
Source: Global Capital Confidence Barometer, EY, 2015
4%
4%
8%
11%
17%
19%
31%
33%
34%
34%
Uncertain tax environment
Valuation gap between buyers and sellers
Adverse economic environment
Regulatory environment
Adverse political environment
Lack of internal resources or managerial focus
Buyer competition
Insufficient opportunities or suitable targets
Funding availability
Deal execution and integration capabilities
April 2015
Page 6 Financial Accounting Advisory Services | Treasury services for corporate transactions
The M&A journey: where are you?
Are you where you want to be on your M&A journey?
In a successful M&A transaction, early treasury involvement across main transaction phases is crucial to gain synergistic value and reduce risk of failure.
Like any journey, a transaction requires a clear road map. EY has identified treasury’s key role in an M&A life cycle.
Each phase requires appropriate planning and understanding of the existing resources and their transaction experience.
Pre-deal Contracting Post-deal
► Perform treasury due diligence review, identify financial risks
► Identify target’s capital structure
► Analyze target’s treasury organization
► Define how the transaction will complete, liaise with tax and legal functions
► Negotiate proposed structure with counterparty
► Analyze and arrange local financing requirements
► Create robust day one integration plan
► Close the transaction
► Put processes in place to capture and measure synergies
Page 7 Financial Accounting Advisory Services | Treasury services for corporate transactions
Treasury challenges in M&A transactions
Resourcing challenge It is difficult to identify dedicated resources for ad hoc processes. A reliance on the existing team increases operational risk by distracting them from day-to-day operations. A common challenge for treasury teams is to be involved early enough in the deal process to enable planning and time to identify resources. The lack of early resourcing could mean that treasury does not have the time, or is not in place, to participate properly in the due diligence phase.
Experience challenge The treasury team’s experience in executing a transaction is important. Cross-border transactions are complex and require an experienced team equipped to respond to risks such as: ► Foreign exchange (FX) volatility arising from non-domestic targets ► Trapped cash ► Local funding ► Incorrect treasury accounting and reporting Bringing the treasury perspective when collaborating with other functions, such as tax and legal, requires experience and is key to successful transaction close and post-deal implementation.
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Key questions to ask when approaching a transaction
Capital markets and funding ► How are you managing changes to target‘s
capital structure? ► Have you considered the allocation of
deal cash? ► Do you have an investment strategy for
excess funds?
Treasury operations ► What is treasury‘s role in the transaction? ► Is your deal structure efficient in minimizing
financial risks? ► How will the deal be funded and paid locally?
Cash management ► Have you identified banking requirements? ► How will cash be reported in new entities? ► Have you made preparation for deal-close
cash payments?
Accounting and reporting ► Have you considered the accounting impact on
the following: ► Local and group financial statements?
► Distributable reserves?
► Existing hedge?
Page 9 Financial Accounting Advisory Services | Treasury services for corporate transactions
How we can help at each phase of the transaction
Pre-deal Contracting Post-deal
► Treasury due diligence ► Determining treasury
workstreams and milestones ► Hedging strategies for deal
funding and headline price ► Managing communications
and presenting to key stakeholders
► Assessment of the sale and purchase agreement for treasury implications
► Identifying settlement risk ► Liaising with other teams to
gather key information ► Impact on group liquidity
from local funding ► Assessment of FX risk
from transaction and group changes
► Development of standardized deal settlement structures to minimise P&L volatility
► Helping ensure efficient implementation of cash management
► Advise on compliance with IFRS for accounting and reporting
► Analysis of, and advise on, acquired financing contracts: ► Change of control
► Contingent liabilities
► Embedded derivatives
Page 10 Financial Accounting Advisory Services | Treasury services for corporate transactions
What benefits can you expect?
Efficient management of deal completion
► Minimization of P&L volatility through careful deal planning
► Structuring settlement payments to maximize successful deal closing
Pragmatic and bespoke treasury approach
► Help with achieving reduction in physical cash transactions to settle the deal
► Help with selecting funding options that minimize trapped cash and inter-company balance cleanup
► Focus on efficiencies and reduction in administrative work
Wider multidisciplinary team that can understand the big picture
► A broad team providing technical accounting input, treasury systems advice for cash management solutions, or help to identify efficient reporting tools in the post-deal phase
In summary ► Dedicated team members, with extensive knowledge of treasury deal risk management, who quickly understand your transaction, work with your team and relieve pressure
Page 11 Financial Accounting Advisory Services | Treasury services for corporate transactions
Why EY?
EY has helped treasuries in multinational groups complete transactions and manage financial risk efficiently.
We can help you:
► Achieve a deal settlement structure that is FX efficient: For example, a listed multinational group completed a US$6b joint venture allowing for asset and share carve-outs involving 120 entities and 60 worldwide locations with no FX exposure left outstanding after the deal close.
► Reduce deal settlement risk and liquidity risk by developing settlement structures focused on global payments: For example, a listed multinational group completed a US$10b acquisition involving asset and share purchases in 55 countries, including entities in Latin America and Southeast and Central Asia, with a maximum one-week local payment delays. The settlement models achieved a 76% reduction in local payment and funding needs (of the 55 countries, only 13 required local transactions with physical cash).
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About EY
Page 13 Financial Accounting Advisory Services | Treasury services for corporate transactions
Your regional EY network Africa Angola, Botswana, Cameroon, Chad, Congo, Democratic Republic of Congo, Equatorial Guinea, Ethiopia, Gabon, Ghana, Guinea, Ivory Coast, Kenya, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Nigeria, Rwanda, Senegal, Seychelles, South Africa, South Sudan, Tanzania, Uganda, Zambia, Zimbabwe
Belgium and Netherlands
Germany, Switzerland and Austria
Commonwealth of Independent States Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Russia, Ukraine, Uzbekistan
Central and Southeast Europe Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Greece, Hungary, Kosovo, Latvia, Lithuania, FYR of Macedonia, Malta, Moldova, Montenegro, Poland, Romania, Serbia, Slovakia, Slovenia, Turkey
France, Maghreb and Luxembourg Algeria, France, Luxembourg, Monaco, Morocco, Tunisia
Financial Services Organizations Belgium, Channel Islands, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Switzerland, the UK
India Bangladesh, India
Mediterranean Italy, Portugal, Spain
Middle East and North Africa Afghanistan, Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Oman, Pakistan, Palestinian Authority, Qatar, Saudi Arabia, Syria, Tunisia, United Arab Emirates
Nordics Denmark, Finland, Norway, Iceland, Sweden
United Kingdom and Ireland The UK, the Isle of Man, the Republic of Ireland
Page 14 Financial Accounting Advisory Services | Treasury services for corporate transactions
Financial Accounting Advisory Services Contacts
EMEIA Treasury Leader
Karin Sancho
karin.sancho@se.ey.com
+45 852 059 767
Corporate Treasury
Craig Kennedy
ckennedy1@uk.ey.com
+44 207 951 9026
Transaction Advisory
Leo Gribben
lgribben@uk.ey.com
+44 207 951 4213
Corporate Treasury
Lynne Counsell
lcounsell@uk.ey.com
+44 207 951 8294
EY | Assurance | Tax | Transactions | Advisory
About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. © 2015 EYGM Limited. All Rights Reserved. EYG no. AU3551 BMC Agency BACS 1002437 ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.
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