M&A Lessons Learned

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


There are three primary synergy capture options: Volume Shift, Renegotiate and Competitive Bid. To determine which of these is the best option, the team must identify overlaps in spend categories (i.e., the types of goods and services purchased); and in vendors, evaluate whether the goods and services are the same, substitutable or different, and determine if the vendors are the same or different. For example, different goods/services from the same vendor may prompt a renegotiated contract, while the same goods/services from the same vendor may be appropriate for a volume shift or a renegotiation. See Image 1.

These categories can be used to identify synergy capture options to be considered for any spend category, contract or vendor. Each may be applied to i) an entire spend category or contract, in which case the contract from which volume is being removed would be terminated, or ii) part of the spend category or contract, perhaps to avoid invoking a minimum commitment shortfall penalty. These options are not mutually exclusive over time. For example, a short-term strategy may include immediate volume shifts within a spend category or between contracts to realize "quick hit" synergies; this can be followed by a long-term strategy that includes a category-wide, competitive bidding sourcing event or contract renegotiation to realize greater, long-term synergies. See Image 2.

Four-step Synergy Capture Process Leads to Success

To capture the defined synergies, there are four key steps that should be followed.

  • Step 1 — Determine Synergy Initiatives
  • Step 2 — Prioritize Initiatives Based on Business Impact
  • Step 3 — Develop Resource and Synergy Capture Plan
  • Step 4 — Execute the Synergy Capture Program

Step 1: Determine Synergy Initiatives

In this step, each legacy company needs to share category spend, vendor spend data and vendor contract terms to identify areas to be assessed. This analysis should be conducted as far in advance of the execution of the merger or acquisition transaction as possible in order to accelerate synergy capture following deal completion.

"At Neustar, we learned something new in each acquisition. Today we have a process guide to make sure every scenario is taken into consideration. Many companies focus on growing revenue as a result of the merger or acquisition, but it is essential to have a team in place ready to look at the synergies and efficiencies that can be generated by streamlining repetitive functions and combining teams quickly," said Carter.

Prior to legal execution of the transaction, the amount of information sharing between the legacy companies, and the conditions under which it can be jointly analyzed, is typically determined by the Legal department as some types of information sharing may violate Department of Justice anti-competition rules. In some cases, information needed to enable the analysis may be declared "non-competitive" and shared relatively openly. Competitively sensitive information may need to be analyzed in a "clean room" environment that has physical, logical and procedural safeguards to ensure that this information is not shared or made known outside of its confines. Ideally, collaboration with the Legal department on an individual, data-element-by-date-element basis should take place to determine the specific information that may be shared and the timing thereof.

Lesson Learned — Challenge the Legal department to closely examine criteria for defining information to be shared between legacy companies as "competitively sensitive." The more information that can be shared outside of the clean room and ahead of the merger or acquisition transaction closing, the faster and more efficient the analysis to develop the Synergy Capture Workplan will be.

Assuming the companies are able to share information, areas for synergy capture may be identified relatively quickly under the following scenarios:

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