The article below is written by Dan Zoltowski on December 2, 2011
It seems that almost every time I turn my head lately or read the latest business news on my smart phone, there is a story relating to a merger or acquisition. This year has been packed with M&A activity, and there doesn’t appear to be any signs of it slowing down in the near future. Oftentimes, the article is announcing a new mega-acquisition or provides an update on a pending merger awaiting antitrust approval. One company acquired their competitor to gain market share or another company is trying to expand the scope of their service offering to their existing customer base. Regardless of the reason behind the M&A deal or the type of deal, I always find myself wondering, “How involved has procurement been during the M&A process? Has procurement been able to demonstrate that it can play a part in driving synergies for the new organization?”.
Procurement opportunities should be identified and addressed accordingly during the spectrum of M&A activities. Listed below are several considerations for successfully engaging procurement during the M&A cycle:
Get procurement involved right away
While procurement may not be the primary reason behind an M&A deal or the most visible function within the company, involvement of procurement during the due diligence process will help proactively identify synergies that can be used to either set or help meet savings targets. How can this be done? A few steps for successfully identifying procurement related opportunities in a M&A situation include:
- Review spend and contract data from all involved organizations – a clean room can help facilitate the collection and review of this data earlier in the process
- Engage the appropriate subject matter experts – use those familiar with both procurement organizations to help identify the opportunities
Clearly understand unique procurement nuances within the organizations
Procurement can cover a wide variety of goods and services. It’s critical to understand unique nuances within the people, process, and technology elements of procurement.
- Is there a bigger opportunity on direct materials given the new product offering mix, or does the major opportunity comes from indirect materials?
- Are there strategic supplier relationships that need to be maintained?
- Are there certain technology solutions in use that can enable the identification of savings opportunity?
What can the organizations handle?
Changes to procurement strategies can impact the entire organization. It’s critical to understand what changes can be made and how each area of the organization is impacted to determine the feasibility of a change. Effectively engaging the appropriate stakeholders and change management resources will help with this process.
Build creditability with demonstrated cost savings
At a time when increased cash flow is important, the quick and successful execution of sourcing related synergies can build a strong name for the procurement organization and significantly contribute to the overall savings target for the merger or acquisition. By publicizing the major success stories throughout the company, employees will be able to see that procurement related changes have positively benefited the entire organization.
While procurement will likely not be the top M&A agenda item in the boardroom, it can absolutely be an area that will gather increasing interest of any C-level executive within the company if addressed appropriately. I, like most other procurement aficionados, hope to see this happen more often as M&A activity continues to be prevalent in the business world.