M&A Lessons Learned

Supply chain management is the key to realizing merger and acquisition synergy savings


Oftentimes the motivations for a merger and/or acquisition are the savings and cost synergies that can be generated from the increased scale and overlapping operations of the combined companies. These synergies generally come from two areas: internal headcount and external vendor spend. Due to the supply chain management (SCM) organization's focus on optimizing vendor relationships and internal spend patterns to reduce costs and increase productivity, SCM is well-positioned to lead the external vendor spend effort with a structured synergy capture program to maximize savings.

Embarking on a merger or acquisition without a strategy or, better yet, a formal program to realize the potential synergies as effectively and efficiently as possible can ultimately lead to failure. Because the synergies are crucial to the future viability of the combined company, the respective SCM organizations should have a leading role in identifying the synergy savings required for the merger or acquisition to succeed.

To maximize merger or acquisition synergies, SCM should drive a structured, regimented program focused on aligning external vendor spend in two ways:

  • Strategic Cost Avoidance — cancelling or avoiding large capital projects by leveraging the combined company's assets, and
  • External Vendor Spend Optimization — using the enhanced bargaining power of the merged company's combined spend and rationalizing common spend categories.

Lesson Learned — The organizational ambiguity, politics and human resource issues associated with a merger or acquisition are major sources of distraction. Strong leadership is required to maintain a laser focus on achieving synergy goals.

Doug Holly, vice president of technology projects for JDSU, an enabler of broadband and optical innovation for communications, commercial and consumer markets, who has been involved in three acquisitions (including being part of an acquired company), stresses the importance of senior leadership.

"There is never too much communication in a merger or acquisition. It is essential that the synergy savings teams are brought together with the leadership team to discuss cost savings efforts and prioritize activities," said Holly.

Lesson Learned — Synergy realization can be accelerated and maximized if the up-front analysis can be performed early — even prior to the close of the transaction. Within regulatory constraints, the optimal scenario is to have sourcing teams ready to launch a portfolio of synergy capture projects on "Day 0."

Bryan Carter, vice president of facilities and procurement for Neustar, a leading provider of essential clearinghouse services to the global communications and Internet industry, advocates for SCM to fulfill an integral role on the team making the merger and acquisition decision in the first place. Carter, who has helped Neustar execute four acquisitions in the past three years, advises that the decision to make the merger or acquisition (or at least the strike price for the transaction) may be significantly impacted by the due diligence regarding synergy realization. In fact, the purchase price may be conditional, with a portion of the price held in reserve, until the SCM due diligence on each company's facilities, assets, systems and vendor relationships can be further determined.

"Each merger or acquisition needs to be evaluated by four or five different stakeholders in order to make the best decisions and best prioritize savings opportunities," says Carter.

Synergy Capture Options Help Evaluate the Opportunities

Once the merger or acquisition decision has been finalized, the strategy or process used to drive synergy savings on external vendor spend is largely determined by the characteristics of the categories of goods and services the legacy companies are buying, and the vendors from which they are buying them.

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