Another company that has decided to outsource its treasury is Flowserve, the $1.5 billion (E1.7 billion) maker of pumps, valves and seals. Although the US company hasn't gone as far as MacGregor, it is moving in the same direction.
Flowserve has focused on Europe, outsourcing to ABN Amro in Dublin the management of its regional foreign exchange, its inter-company investing and lending and its cash pooling. On a global basis, the firm has outsourced its netting, again to ABN Amro, and is working on outsourcing its inter-company investing and lending in Asia.
For Renée Hornbaker, CFO of Flowserve, the decision to outsource came as a result of the company's rapid growth. Flowserve had bought a lot of businesses outside the US, and planned to continue its aggressive M&A expansion. By outsourcing much of her international treasury, Hornbaker was able to install robust systems that could grow rapidly. As she puts it, "Scalability was important. Since we decided to outsource, Flowserve has doubled in size with very little incremental investment in treasury." In fact, adds Hornbaker, because ABN Amro regularly updates its systems, Flowserve stays at the forefront of treasury technology. "We have a whole suite of web-enabled tools that we haven't had to develop in-house," she says.
Still, in spite of notable successes such as those of Flowserve and MacGregor, the treasury outsourcing marketplace remains relatively undeveloped, and the next few years are likely to see a lot of change. In particular, the types of outsourcing provider, and the services they offer, are set to change dramatically.
Currently, the most established players are the big international cash management banks such as JP Morgan, Citibank, ABN Amro and Bank of America. Besides them, however, are a variety of independent operators such as FTI. Another one is being set up by JM Huber, a US oil, chemicals and timber group. In 2001, JM Huber bought Assistanttreasurer.com in the US and Vtreasurer in Dublin and is combining them with its own in-house treasury to create a global outsourcing service aimed at mid-cap companies.
Opinions vary as to whether banks or independents are better. At MacGregor, Hansson and Malm are adamant that they will only use a partner that is independent of the banks. While at Flowserve, Hornbaker says she is happy with ABN Amro running her treasury—strict guidelines ensure that, for example, all foreign exchange deals are subject to a full competitive bid among her relationship banks. Another potential force in the market are the treasury software vendors such as Trema, Alterna and XRT. Many of these companies have developed ASP versions of their workstations, which let companies outsource just the technology side of their treasury departments.
Toothless ASP?
Sungard, for one, has an ASP model of its software called eTreasury.com. Ken Dummitt, president of Sungard Treasury Systems, says sales of eTreasury.com are "meeting expectations," although many in the industry believe ASP outsourcing is destined to fail because it doesn't deliver the benefits of full outsourcing.
Looking to the future, some foresee consolidation, with banks, technology providers and other partners teaming up to form treasury outsourcing powerhouses. That's certainly the vision of David Knight, a senior partner at PricewaterhouseCoopers. He predicts the emergence, in two or three years' time, of "treasury solutions providers" which will act as a full in-house bank and payment factory to their clients, providing a broad range of trade and financing services. For example, they'll offer receivables securitisation, giving treasurers a real-time view of their receivables over the internet so that they can be sold on to banks.
Whatever the future, treasury outsourcing looks set to grow. As Kombrink at Bank Mendes Gans notes: "Treasury departments aren't getting any bigger."
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