Best Practices for M&A

A supply chain check list for successful mergers and acquisitions


By Andrew K. Reese

When beer brewers SABMiller PLC and Molson Coors Brewing Co. announced plans to merge their U.S. operations in October, the companies said that they expected to achieve $500 million in annual cost savings from, among other things, streamlining production and reducing shipping distances. Achieving the projected cost savings will be key to the success of the merger as the united brewers contend with rising prices on aluminum, grains and other commodities. In addition, the cost cuts will help strengthen the new company's hand in a potential price war with Anheuser-Busch, which holds almost a 50 percent share of the U.S. market (versus the combined SABMiller-Molson Coor's roughly 29 percent).

Supply chain considerations rarely are the driving factor behind mergers and acquisitions. But as the beer brewers' linkup suggests, the supply chain function typically plays a crucial role in ensuring the success of any union of two or more companies. This article explores "best practices" for ensuring that the supply chain can rise to the challenges and meet the promise presented by a merger or acquisition.

Plan Early, Plan Realistically

A survey of 154 supply chain and other business executives at large U.S. corporations conducted last year for Accenture revealed what most supply chain executives probably already knew: in the majority of cases (77 percent in the survey), supply chain executives became involved in a merger only at or after the announcement of the deal. That's too bad, says Jay Welsh, a partner in the supply chain management practice at Accenture, because companies that bring their supply chain leadership into the merger planning process earlier are more likely to be successful in meeting their goals. "It's important to have supply chain executives involved early in the planning process, getting them involved not only during the synergy estimation and analysis, but also during the due diligence," Welsh says. "That's the number one success factor."

Bringing supply chain into the planning process early helps on a couple different fronts. First, doing a thorough, upfront analysis of the potential M&A synergies — that is, the cost savings that can be expected from combining two or more companies' operations — from a supply chain perspective can help ensure that senior management sets goals that the supply chain organization can actually meet, Welsh says. Conversely, supply chain executives may be able to identify additional synergies that the C-level group hadn't considered. Either way, establishing goals that are achievable makes it more likely that the merger will be viewed as a success once the dust settles.

Second, involving supply chain executives at an early stage can help the supply chain function understand how they're expected to meet the goals for the merger, says Marc Tanowitz, a principal with Pace Harmon, an information technology and supply chain consulting firm based in Vienna, Va. "Sometimes you'll hear a CEO say that supply chain is going to drive X among of savings, but the people in the supply chain organization don't necessarily know what that means," says Tanowitz, who estimates he has been involved in some $200 billion worth of merger activity for various companies. Does the CEO mean that the supply organization is supposed to re-source major spend categories for per-unit cost savings, or figure out how to reduce inventory to drive savings through lower working capital expenditures? Bringing supply chain into the analysis process can help the organization focus on the correct set of target metrics from the start of the merger process and begin planning that much earlier for how to accomplish those targets.

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