M&A supply chain benefits
But is this truly bringing benefit to the marketplace for participants, customers and acquirers? Let’s look at it from each of the constituent’s perspectives.
The customer now has the ability to access services for every phase of their product lifecycle—from design to de-manufacture and all of the services management portfolios in between. And if they choose, they can gain leverage by doing this within a handful of qualified vendors. Prior to these acquisitions, it was a multi-vendor, multi-geography, multi-service offering. Anyone who lived this will tell you that just the tracking of vendor performance will keep a team busy let alone leave time for any innovation in one area. Those economies alone would sell some purchasing professionals on the idea.
From the acquirer’s perspective, it enables new, more profitable and less commoditized ways to interact with existing customers and gain new ones. All of this activity should lead to higher levels of operating income as well as higher earnings per share all driven by the higher margin profile of these services. But because these acquisitions come in small “chunks,” acquirers need to be thoughtful about their target companies as well as their go-to market strategies. Developing synergies with existing sales and service teams goes a long way in this area.
For aftermarket services industry participants, this M&A activity unlocks value for their businesses that would otherwise go unrealized. Most of these organizations run undercapitalized and with some level of debt service (long or short term). This activity allows owners and/or shareholders a way to break that cycle and reset their balance sheets. It also offers the opportunity to go beyond their historical customer and capital constraints and really grow their businesses in ways that would not have been possible without a strategic acquirer. Additionally, new participants now have an “end-game-strategy” as long as their business strategy, technical competency and service delivery are carefully thought out.
Gain short & long-term growth
In the short term, we will continue to see more acquisition activity in these areas. There are still good aftermarket service companies in the marketplace and there are still holes in the service offerings of the larger acquirers. As these activities mature, we will see the industry benefits mentioned earlier really begin to multiply. In the longer term, as the acquisition and go-to market strategies become more refined and the service offerings more fine-tuned, these benefits will really have a lasting impact on how customers access these services and from whom. Not to mention, the positive and long lasting bottom-line impact to the service vendor. The only thing left to do is execute.
Frank Cavallaro is Founder of Fronetics Strategic Advisors, a strategic advisory firm designed to help companies and private equity firms involved in the global hi-tech supply chain, electronic asset disposal and integrated logistics industries optimize go-to-market strategies to grow their businesses and drive shareholder value. For more information, visit www.fronetics.com.