July 07, 2022 | M&A
Mergers or acquisitions are not easy to execute. The challenges in merging the two entities require a well-thought-out M&A acquisition strategy. The strategy must also consider a sourcing engagement – transparent communication, implementation, involvement of senior leadership; and finally, change management, to drive optimum synergy between the two entities and realizing it.
The foremost strategy that a merged entity must consider is communicating across the new entity regarding a sourcing engagement. It must get buy-in from its personnel to ensure the program is successful for leveraging it for savings, especially considering the complexity involved in amalgamating two different organizations with different cultures, different reporting structures, and different policies.
"Early and Often" should be the motto of communication for any M&A sourcing program, according to a white paper by GEP - Mergers & Acquisitions – How Procurement Can Drive Greater Synergies and Savings. The three different parts of M&A communication are – project launch, project communication, and milestone achievement.
This communication is sent to everyone in the merged entity. It lays down the combined sourcing program's objectives and how to achieve them. It lays down the short-term and long-term plans, the persons spearheading the project, the roles and responsibilities of the team members involved in this project, exception management, and the escalation matrix. This will ensure everyone in the organization is on the same page and aligned with its long-term objectives.
This communication is sent to all the parties involved in the project. It conveys the project activities that have been completed and those yet to be completed and their timelines. Additionally, team leads send weekly or biweekly status updates to project leads or decision-makers for tracking the projects so that any course correction required may be carried out timely. This enhances transparency and builds a knowledge base.
Whenever a large and complex project is successfully completed and substantial savings realized, the business should communicate throughout the enterprise and the team members responsible acknowledged.
The team involved in the M&A sourcing program creates a plan with five phases to be executed to maximize the savings for the enterprise. The five phases are as follows:
This is the evaluation phase, where the supply chain and procurement team responsible for the sourcing engagement assess the value of the acquisition in terms of sourcing. A 'Clean Room' is instituted for sharing of confidential information by the two entities. Targeted savings may be set based on the critical contracts/agreements, strategic suppliers, and current operational standards.
In this phase, every category opportunity identified is reviewed thoroughly to establish the savings targets.
In this phase, the suppliers and contracts of the two entities are evaluated against set guidelines based on the contract rates, services, SLAs, location, and contract terms. A supplier negotiation plan is developed once the review and discussions with the suppliers and other stakeholders are completed.
In this phase, the sourcing team will leverage the scale provided by the combined entity to evaluate local suppliers or other top-class suppliers for better terms and rates than existing suppliers for enhanced savings.
In this process, the team should identify simple business process improvements that can contribute to increased savings and implement them immediately.
A cross-functional team consisting of senior leaders from various verticals and headed by a senior member of the managing committee of the merged entity is critical for the success of the M&A. Decisions such as changing suppliers, adopting the latest technology, modifying operational processes, avoiding pitfalls, assessing and mitigating risks will be taken by the steering committee.
Including supply chain and procurement members in M&A planning and execution ensures the M&A growth strategy is in place.
Supply chain and procurement members bring insights to help meet business objectives; reduce operational risks and ensure efficient integration of legacy processes and systems.
The inherent nature of supply chain and procurement functions to unlock potential value and drive cost savings enables long-term competitive advantage.