Payment transactions for carve-outs & day-one readiness

Times of political and economic upheaval have an impact on companies' business models and increase the likelihood of M&A activities. In a macroeconomic situation with recessionary tendencies and falling profits, carve-outs are more common in industrial companies. In such situations, the treasury department quickly finds itself in the middle of a time-critical reorganisation with far-reaching implications for processes and systems. The following article deals with such carve-out situations in light of current events, focussing on one of the key issues: establishing and ensuring solvency.

In the current year, we are increasingly experiencing external influences with a major impact on companies: the change in traditional business models, e.g. in the energy sector or the automotive industry, a tightening of US customs policy, an expansion of geopolitical conflicts (e.g. continuation of the war in Ukraine), increased investment in defence and recessionary trends that are impacting long-standing business models. For many companies, this leads to a need for change and investment pressure that must be financed. If the cost of capital is high and the earnings situation is under pressure, the sale of business units can quickly become an option in order to generate the necessary liquidity and finance investments and change processes. A sale or carve-out is not always planned well in advance, but can become necessary as a portfolio adjustment (sale of non-core assets) due to an emergency ("stressed divestiture"). Regardless of whether the treasurer was expecting the carve-out, is caught unawares or deliberately embarks on a carve-out project, numerous project goals must be effectively achieved under time pressure:

• opening bank accounts to ensure solvency
• Ensuring efficient and automated mass payment transactions
• Planning and managing operational liquidity
• setting up financing, if this is not done by the new owner
• introducing or migrating a treasury management system
• migrating banking transactions and other data
• the identification and hedging of financial risks (FX, interest rates)
• and many more

Ensuring solvency to prevent insolvency is often the most pressing and important issue for day-one readiness of the treasury (i.e. the full operational capability of the new organisation from the day responsibility is transferred) and will be considered in this article. Other topics such as risk management or TMS systems are also important, but are not the focus here.

Setting the right course at the start of a payment transaction project is crucial to its success. In our consulting practice, we often come across misconceptions that can affect the further course of the project, such as:

  
What all misconceptions have in common is that the establishment of solvency is often underestimated, which leads to problems during implementation.

When starting a payment transaction project, you should first be aware of the parties involved on the buyer's and seller's side and their return expectations (equity return)¹:

• Foundation/Family Office: 7-10%
• Traditional corporate in Germany: 8-12 %
• Private equity company: 15-25 %

Private equity ("PE") companies often act as buyers. In comparison to potential other owners, their focus is often even more on optimising key financial figures and cost structures. This can have an impact on the organisational structure, for example, if the PE investor is interested in having fewer permanent staff in the enabling processes of the new investment and instead relies on outsourcing and service providers. Furthermore, business cases are mandatory for the approval of IT projects and close-meshed project reporting is demanded more than by industrial companies or foundations. A PE owner also usually has more extensive requirements with regard to monitoring and controlling its investment in terms of liquidity requirements, working capital ratios or the net financial position.

In addition to the type of owner, the parameters of the purchase agreement have a major impact on the project. For example, the contract regulates which party will set up the new organisation, the extent to which the seller will contribute to the project and, above all, how long the project will run until the go-live date (i.e. the transfer of operational responsibility). In addition, a transitional service agreement (TSA) regulates whether and for how long the IT infrastructure of the old owner as well as its central processes and employees will be available to the new company (NewCo).

In addition to the owners, numerous other parties can be involved in the carve-out project:

• IT service providers who accompany the migration
• Treasury system houses
• Consultancy firms that organise the carve-out project
• Payment service providers for the outsourcing of payment operations
• Payroll service providers for the outsourcing of HR payments
• Future outsourcing partners in the area of IT services
• Other freelancers or management consultancies
• and of course banks

In such complex project situations, standardised documentation, clear communication and the clear allocation and assignment of responsibilities are essential in order to work together efficiently in the project. In addition, the treasury department should represent its own interests from the outset with regard to the selection of suitable partners:

• Infrastructure: The use of IT systems (ERP, TMS, middleware, payment gateway) can be specified as an IT strategy or by the purchasing department. However, in order to simplify the implementation of payment transactions, it should be possible to influence tool decisions where necessary (e.g. when deciding on the development of payment formats as a "make or buy" alternative).
• Banks: The choice of banks can be determined by the owners' banking strategy and financing considerations. If possible, it should definitely be scrutinised in order to find the optimal setup for payment transactions as well.
• Degree of centralisation: Another fundamental decision concerns the degree of centralisation in payment transactions - both in terms of payment processes and the release of payments and "bank connectivity". What should be decentralised and what should be centralised?

Once the fundamental course has been set in the project, at least a brief analysis phase should take place. Even if time is of the essence and the temptation to get straight down to implementation is great, sufficient transparency about the current situation is crucial in order to avoid blind spots and later surprises during implementation.

At the beginning, a solid understanding of the actual processes in payment transactions and their target image should be established. Is there a payment factory for external payments or a netting process for internal payments and should these be retained? Which foreign currency accounts exist and how does the "FX conversion" take place? Do salary payments take place internally or are they outsourced to service providers? What cash pools and MT101 agreements exist for cash management?

In order to set the right priorities for implementation and rollout, actual data on historical payment behaviour per country should be determined. Based on the historical transaction volumes per country, it is best to decide in which countries automated payment transactions are most important in terms of the Pareto principle (80% vs. 20%).

In addition to the aforementioned 80% of mass payment transactions, an inventory of the most important countries should nevertheless be carried out in order to understand local priorities and special cases and to avoid subsequent escalations (e.g. by local finance managers and CFOs). For example, a cheque printing programme may need to be migrated in the USA, a process for regulatory reporting with supporting documents may need to be set up in China or a BACS Direct Debit procedure may need to be set up in the UK for the collection of debit receivables, to name just a few local special cases.

Provided that the preparatory work of the analysis phase, fundamental decisions and stakeholder analysis has been completed, the prospects for successful implementation are good. The procedure for setting up payment transactions follows the usual steps and will only be described in outline.

Every implementation starts with discussions with banks regarding the opening of accounts (Know Your Customer process, KYC), the establishment of bank connections (SWIFT, EBICS or H2H) and the provision of format specifications. Typically, an overarching project plan is agreed with the banks' headquarters and the implementation details per country are discussed with the banks' implementation managers.

Based on the banks' specifications, payment formats are developed in the ERP or TMS for each country and payment type if no format library is used. Payment runs are then created and the developed payment formats are tested several times: by the developers ("Developer Test"), by the specialist department ("User Acceptance Test", UAT or "Volume Test") and as real payments after go-live ("Productive Verification Test", PVT or "Penny Test").

Parallel to the development of the payment formats, further technical prerequisites must be created to establish technical payment capability, such as the configuration of the master data in ERP and TMS (bank master data, bank accounts, G/L accounts, approvers) or the establishment of the relevant system connections. As with the sending of payment files, the receipt of account statements and their automatic posting to G/L accounts must also be organised. In addition, corresponding roles and rights in TMS/ERP may be required for the "Accounts Payables" and "Accounts Receivables" teams as well as the authorised approvers.

Once the go-live has been completed after proper preparation, this is typically followed by a hypercare phase with regular appointments for business-critical countries. Technical problems and defects in the production environment often have to be solved in co-operation with developers, the TMS provider, IT base operations and the banks.

In addition to the specific implementation steps, experience from other projects is the main guarantee for the success of a payment transaction project. Here are some examples of typical pitfalls that must be avoided:

1. Legal department: For the opening of bank accounts, the registration of new companies must be finalised by the legal department in good time.
2. Accounting: The definition of the account master, the G/L accounts per bank account and the addition in the UAT must be requested in good time.
3. Project risks: Management should be made aware of significant risks in payment transactions, such as the risk of insolvency, fraud risks, and impending penalties for data protection violations.
4. Bank account list: A list of all bank account data is an essential working medium of the project. The bank account list should always be up-to-date, available to all project members and complete from the outset. Theoretically, the data can already be entered in the TMS (Treasury Management System) or a Bank Account Manager (BAM).
5. Payment advice notes: A company is only fully solvent if the liquidity is available where it is needed. To this end, payments must be anticipated with a short-term liquidity forecast or internal payment advices for planning purposes and cash pools must be set up.
6. Security: A profound and coordinated roles and rights concept, taking into account compliance with the dual control principle and several factors for authentication, is the prerequisite for security in payment transactions.
7. Transfer of expertise: Specifics relating to local payment transactions must be transferred and documented by means of professional handover sessions or work shadowing, unless the relevant employees are taken over by "NewCo".

Ensuring solvency in the course of a carve-out is no simple endeavour. Rather, it is characterised by a high level of complexity, a high implementation effort and technical obstacles - usually under enormous time pressure. Nevertheless, a treasury department can successfully master the challenge if it takes the initiative immediately from the start of the project, identifies all the critical points with a robust as-is analysis and sets the right priorities. If it remains in the driver's seat when managing internal and external stakeholders and professionally involves service providers and banks in the project, solvency can be ensured in good time. If it also clearly regulates the competences and responsibilities of the subsequent organisational structure, retail payment transactions can also run reliably and securely in subsequent operations.

Source: KPMG Corporate Treasury News, Issue 157, August 2025
Authors:
Nils Bothe, Partner, Finance and Treasury Management, Corporate Treasury Advisory, KPMG AG
Sascha Uhlmann, Senior Manager, Finance and Treasury Management, Corporate Treasury Advisory, KPMG AG

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1 The percentages mentioned are only reference points or subjective empirical values for companies in Germany and are not substantiated by sources. They may vary upwards or downwards depending on the region and the macroeconomic situation.