5 minute read
5 minute read
When two companies merge or one acquires another, the stakes are high.
M&A activities are notorious for failure. Depending on whose research you believe, mergers have a failure rate between 50-85%, and acquisitions are even higher at 70-90%.
Effective M&A is especially challenging for CPG and food & beverage companies that need to turn two separate supply chains into one. Kearney research has found that after an M&A, 57% of CPG companies declined in aggregate profitability, while 14% reported no change.
Supply chain problems are a major hurdle to M&A success. Failure to integrate supply chains can result in delivery delays, rising costs, disrupted production, non-compliance, poor customer service, and unhappy employees, all of which can turn a deal on its head.
Planning and preparing for M&A supply chain integration is essential for companies that want to be a success story, not another statistic. Keep reading for our top considerations for supply chain integration that creates a long-lasting competitive advantage.
Deloitte research has found that in the consumer and industrial products category, supply chain synergies account for 50-60% of overall M&A deal synergies. Manufacturing and distribution play a big role here.
In fact, manufacturing is a driving force for numerous recent M&As in the CPG space, according to Food Dive. When CPG companies acquire existing companies’ plants, it helps ramp up production, widen a brand’s reach, and gives companies access to new equipment and processes.
However, acquiring an organization’s existing centers is rarely seamless. Often during an acquisition, CPG companies leave both their network and the acquired company’s network as-is, which creates duplicated plants and distribution centers. This leads to inefficiencies, redundancies, and wasted time and money.
Instead, companies need to think about optimizing the network to support the organization’s goals. This means addressing these questions as early as possible:
Designing the network for long-term value should be considered before the acquisition, not as it’s happening or in the months following. Conducting an extensive supply chain assessment early in the process and addressing logistics, production, and distribution challenges as opportunities instead of liabilities can help companies get ahead of inevitable challenges.
M&A activity presents a great opportunity for sourcing and procurement. This is the perfect time for leaders to evaluate two separate sourcing programs and combine them into one that maximizes savings and supports businesses goals. McKinsey research has found procurement typically contributes at least a third of the total synergy value in an integration.
Big changes happen when two companies merge their sourcing/procurement programs. For example, leaders will need to renegotiate contracts with suppliers and retailers. Organizations will also be able to purchase raw materials and other items in bulk, saving time and money.
GEP outlines the main sourcing considerations during the stages of a merger or acquisition:
1. Pre-M&A Due Diligence: Assess the value of the acquisition in terms of sourcing. Targeted savings should be set based on contracts/agreements, strategic suppliers, and operational standards.
2. Post-M&A Due Diligence: Establish savings targets and thoroughly review category opportunities.
3. Harmonization: Develop a supplier negotiation plan after the suppliers and contracts of the two companies are evaluated based on contract rates, Service Level Agreements, location, and contract terms.
4. Strategic Sourcing: Evaluate new suppliers for better terms and rates than existing suppliers.
5. Process Improvements: Focus on identifying and implementing other business process improvements after the contract negotiations and supplier evaluations are complete.
Involving sourcing and procurement leaders early in the M&A process is key for designing a program that creates operational efficiency and cost savings.
Read: Supply Chain Trends & Insights Report: Innovation
When two organizations become one, the IT systems and data from both companies need to be integrated to support the processes and goals of the merged entity. A merger or acquisition brings a lot of pressure to the IT department, as a company that never successfully integrates is set up for failure from the start.
Plus, the benefits of fully integrated IT systems are crucial for a company to succeed: organizational synergies, business continuity, and cost savings.
The best strategy for effective systems integration? Involve IT as early as possible in the M&A process and project team. IT should be involved from day one so they can assess the data and systems architecture and prepare a plan for integration. This also gives IT the chance to determine if new systems need to be procured and implemented to support the goals of the merged organization.
If IT can’t be involved from day one, it’s essential to include them in the due diligence process. McKinsey research has found 50-60% of initiatives intended to capture synergies are strongly related to IT, but most IT issues aren’t fully addressed during due diligence or the early stages of post-merger planning. Additionally, the same research has found successful IT integrations deliver 10-15% cost savings for acquiring companies.
Systems and data aren’t exclusively an IT problem, especially in the supply chain. With supply chain operations heavily reliant on digital technologies, systems integration and optimization needs to be addressed at every stage of the network, from production to delivery and everything in between.
Read: Case Study – SAP S/4HANA Implementation Support
Since the main reasons for a merger or acquisition often include gaining market share, increasing revenue, reducing costs, and diversifying, it’s clear that finance plays a critical role during the process.
However, according to Accenture research, integrating finance processes and reporting is one of the top post-merger challenges in an M&A deal. Further, the finance functions affected most by the M&A process include planning & forecasting, accounting, consolidated reporting, internal reporting, and tax considerations.
In the CPG space, finance is a function that considerably impacts supply chain success, and vice versa. When companies merge or undergo acquisitions, the finance department needs to have the tools and resources to be agile enough to adapt to challenges, prepare for disruption, and optimize for the future.
Take this case study of a recent client of ours. The company, a global CPG food company, acquired another to expand its market share. However, legacy finance reporting techniques were preventing leaders from receiving the data needed to make strategic and quick decisions.
To aid in post-acquisition success and prepare the company for future acquisitions, our team developed a suite of dashboards in Tableau to create better finance and supply chain visibility and insights. The dashboards included a wide range of finance data and functions that provided the company with key insights and equipped the finance department with the knowledge to drive the business towards profitability goals.
Even when the driving force and end goal are positive, M&A activities bring about big organizational changes.
When a company acquires another, employees on both sides of the acquisition will have their day-to-day transformed—and likely disrupted—at least for some time.
It’s important to minimize this disruption as much as possible. Most change-affected employees report experiencing elevated stress levels, and those suffering from change-related stress perform worse than the average employee, according to Gartner.
The good news is an effective change management and communications plan can help minimize employee resistance and lead to smoother integration.
1. Executive sponsorship from both companies. Prosci research has shown effective sponsorship increases a project’s chance of success from 25% to 85%. It’s important leaders from both organizations are present, communicative, and on-board with the initiative.
2. Transparency and clear communication. Humans are naturally resistant to change. Using confusing jargon or sharing half-truths will only make employees skeptical and potentially jump ship. Giving employees time to process the news and being transparent about how their work will be affected will help establish relevancy and gain trust.
3. Bring in outside resources if needed. The people side of an acquisition can’t be ignored. However, business leaders may lack the necessary internal skills to effectively manage the change. Outside resources and consultants can ensure change management is done right, right from the start.
Read: 4 Common Barriers to Change Adoption
Catena Solutions is here to help. With expertise spanning business transformation, data & analytics, and strategic finance and global sourcing, we can design and implement the solutions your organization needs. Contact us to learn more.