Early involvement, savings delivery and knowing when to call on external expertise – a quick guide to building procurement’s profile during M&A activity.
M&A activity has been increasing across the globe since 2008. According to financial software company Dealogic, global deal values hit the $1.75 trillion mark halfway through this year. Recent M&A activity includes General Electric’s $17 billion purchase of Alstom’s energy divisions, Oracle’s $5 billion purchase of Micros Systems and the £3.8 billion merger of Dixons Retail and Carphone Warehouse.
Though often overlooked, procurement is ideally positioned to take a leading part in the M&A process. Although the reasons of carrying out M&A activity can range from expanding into new markets, through to removing a competitor, savings are almost always an important factor. This automatically qualifies procurement as one of the principal actors, but is certainly not the only area where it can contribute.
Of course, the role of procurement will differ based on the type of deal, the objectives associated with the M&A and, to some extent, the profile of the function within the business. Below I have highlighted a few guiding principles that should be considered by any CPO involved in a merger or acquisition.
An issue for many procurement departments involved in M&A activity is that they are brought in too late. Playing a part in the due diligence process means the function will be able to set and contribute to any initial numbers, not simply be handed them and told to deliver at a later date. Early involvement also provides an opportunity to deliver early savings, build a case for procurement’s wider involvement throughout the process and secure a place amongst the decision makers.
Procurement’s bread and butter are savings and it is vital to make sure these are delivered in line with expectations. Failure to do so will affect the function’s credibility and its future implication in the programme. Procurement also needs to look beyond leveraging volume and consolidating supply bases and consider other areas where it can deliver value.
In this context, the previously mentioned merger between Dixons Retail and Carphone Warehouse is expected to achieve savings of close to £80 million, thanks to a combination of retail and procurement. In a statement, the businesses said they expected savings to be achieved by integrating their mobile retail platforms, procurement synergies as well as benefits associated with scale.
Of course it’s about more than just savings. Depending on the objectives behind the deal itself, procurement should not feel constrained to only examine potential savings benefits. One example is the adoption of best practices from one company to another. Do not always assume the larger of the two companies has the better processes in place. In my experience, the bigger the business the more likely it is to have adopted a “one size fits all” type approach.
Finally, do not be afraid to look to external consultancies and IT experts to make the process more efficient. Third parties will typically have extensive experience of dealing with M&A activity and will be able to use this to solve common challenges. Aligning the various functions can prove difficult and time consuming and there is a risk that certain initiatives are forgotten or pushed aside because the businesses simply do not have the capacity to implement them.
An opportunity for procurement
In conclusion, M&A activity provides a great platform for procurement to showcase its abilities. Not only does the function have the opportunity to get involved and achieve rapid savings, but it can take advantage of an environment which may be more open to change and innovation. Leveraging the latter is important to achieve sustainable benefits that go beyond savings.
Having said that, the key to maximising procurement’s impact is early involvement. This allows the function to gain credibility through delivering savings and then maintain this momentum. Getting the basics right and building on this will open many doors for the function within the newly formed business.