Looking back at over 20 years of The Treasurer’s Deals of the Year Awards yields interesting insights into the pathology of deal-making.
There can be little doubt that completing and executing a transaction brings group treasurers and their teams a great deal in terms of consolidating skills and serving the strategic needs of their organisations.
In 2015, for instance, London & Quadrant (L&Q), one of the UK’s leading housing associations – which owns and manages more than 90,000 properties in London and the South East – won the Deal of the Year Award in the Bonds below £500m category for completing a difficult sale in one of the UK’s most challenging sectors when it raised £250m via a bond issue.
Since winning the prestigious award, L&Q’s director of treasury, Martin Watts, says the deal has not only helped the business achieve its challenging goals, but also boosted the recognition and confidence of the team both internally and externally.
“The kudos of winning the deal has helped us tremendously as an organisation and as a team. It has raised our profile in the line of business in which we operate and allows more people to understand what role L&Q plays in the delivery of housing supply,” Watts says.
Critically, Watts emphasises the importance of the achievement for the whole treasury team and the collective effort involved in reaching their aim. The support from key stakeholders both internally – the board – and externally – government departments, lenders and investors – has also been a boon to the team.
Treasurers must oversee every aspect of the deal and not leave it to the adviser to do the legwork, because in that way miscommunication can occur and ‘lessons learnt’ can be missed
“For the team, what was important was the nomination. The strength of the deal that we did certainly helps with engagement, confidence and interest from stakeholders in what we do; and that treasury has a hugely important role in allowing us to deliver our objectives,” Watts says.
The boost in confidence and success of the deal helped develop Watts’ team’s knowledge in how to prepare, organise and “push the boundaries in terms of timelines, and how to negotiate hard, but fairly”.
To ensure a deal is successful, the treasury team must be fully engaged and understand the goals. To do this, the team must be clear on the objectives of the transaction, the milestones to reach and the deliverables to attain.
And this means that, from a project management point of view, the pre-transaction work must be clearly structured, and its stages and desired outcomes clearly communicated.
With focus and attention increasingly turning to sustainability, another area that is gaining traction is green bonds. Corporate green bonds are beneficial to all parties in the deal.
Green bonds can not only align with a company’s sustainability vision, but also support a business’s commitment to sustainability and responsible green investment.
In 2015, Shanks plc, international waste-to-product business, now Renewi, entered the market with the first green retail bond offering to be listed on the UK Exchange. It also earned the judges’ commendation for the merger financing in 2016.
Former Shanks group treasurer Adam Richford, now group treasurer at Renewi plc – created from the merger of Shanks Group plc and Van Gansewinkel Groep – says the rationale behind the green finance initiative is that it serves as a means of “creating a congruency of funding and recycling”.
The deal raised the company’s profile and brand recognition as green and sustainable, says Richford, but the transaction also benefited the company in employee engagement and its sustainability objectives.
The benefit to asset managers, Richford says, is they can see they are investing money in a sustainable business, which could help in their own sustainability targets.
And for banks, in a post-crisis world where trust in banking has been significantly eroded, offering green financing could help in terms of changing perceptions of banking more widely.
“It could encourage treasurers to think more intrinsically about the value of equity. A lot of people will dismiss green finance because there’s little benefit in terms of cost of debt, but there are huge advantages for the wider corporate community,” he says.
As for the skills that green finance can afford treasurers, Richford says, it can help lift treasurers out of their siloed areas within companies by illustrating to the wider business that treasurers’ focus is much deeper and broader than just finance.
It is undoubtedly a relatively immature space, but it is an area to keep an eye on and where treasurers could up their game for both the treasury department and the wider business.
So, what have been some of the other lessons across the two deals?
The process has to be a clear win-win for both sides of the equation. Treasurers must prioritise banking relationship management in an open and honest way to best manage each other’s expectations. There should be a healthy tension within a relationship that is mutually beneficial.
“We want lenders and investors to support our business so that we can meet our objectives. Understand your stakeholders, but don’t be afraid to challenge the norms,” Watts says.
The skills of L&Q’s team were vital to the deal’s success and other transactions since. The competency framework set out by the ACT for technical, business and behavioural skills is a key tool on which to assess the capabilities of a treasury team.
When L&Q went to the market in 2015, the then UK chancellor George Osborne had announced plans to reduce the household benefit cap from £26,000 to £23,000 a year, with an additional review of housing benefit, both of which were to impact significantly on L&Q’s customers.
But the policy change did not deter L&Q’s treasury team from going to market.
Watts said L&Q tackled the risk head-on with stakeholders by outlining what the risks were and how they would impact the business, and how they would be managed, in each case, in a clear and transparent way.
With this approach, it is also much easier to track and measure performance.
“Back in 2015,” Watts says, “the news of the forthcoming rent cuts would have an impact on our ability to generate cash within our business through rents. So our point was ‘here are the efficiencies we are going to bring in. Here’s how we are going to deal with falling rents’.
“These things then become red lines internally and externally.”
Make sure your adviser understands clearly what you are trying to achieve in your business and that they understand the red lines. They should advise and not run a transaction.
For treasurers to have full oversight over the deal, they must oversee every aspect of it and not leave it to the adviser to do the legwork, because in that way miscommunication can occur and ‘lessons learnt’ can be missed.
Ensure your goals are clearly communicated. In this way treasurers can ensure full oversight. Applying the themes of simplicity, consistency and flexibility ensures effective governance of the deal and the best possible outcomes.
But key to any deal’s success is in making sure that the deal is a win-win for all parties involved.
Don’t be put off by challenging economic or political circumstances. Recent and ongoing tumultuous global events are testing the skills and abilities of treasurers, but deal success and recognition in these times can only build on a corporate and treasury team’s profile.
A successful transaction brings benefits all round:
1. Impact A successful deal and recognition of that deal ensures a direct line to the board and improved understanding of what treasurers can achieve for the wider business.
2. Profile raising A deal raises the profile of treasury both internally and externally. Public recognition will boost team confidence and the corporate profile within the business as well as externally. This sometimes intangible result should not be underestimated.
Michelle Perry is a finance and business journalist
This article was taken from the Feb/Mar issue of The Treasurer magazine. For more great insights, log in to view the full issue or sign up for eAffiliate membership