Over the last few weeks, we have seen a number of major acquisitions. None larger than the historic ‘shotgun-acquisition’ of Credit Suisse. UBS will pay 3 billion Swiss francs (£2.644 billion) for 167-year-old Credit Suisse Group AG and assume up to $5.4 billion in losses. The acquisition makes UBS a significantly more powerful on the global stage, with a pro-forma c.$5 trillion assets invested with its global AWM arm and expects to be the largest personal & corporate banking franchise in Switzerland by 46% (measured by customer deposits.) Job protection has already been outlined as a key priority however UBS will have to take action to ensure they don’t absorb sustained losses.
For UBS, ensuring a smooth integration, and maximising the full benefits will be the key priority, post-acquisition. This may look like right-siding the acquired company and getting out of a crisis-state, it may also focus on fuelling growth and expanding market share. Whatever the case may be, procurement & supply chain is an enabler for many acquisition objectives, it should form a major part of the 100-day plan, and in crisis situations it’s often the first place you should go. It provides organisations with the opportunity to rapidly reduce costs without having to move straight to headcount reduction. Below are 3 ways procurement & supply chain makes an impact in acquiring distressed assets.
- Turning round the cost base – Whether it’s a distressed company that’s been acquired, or a profitable one, there’s huge amounts of opportunity within 3rd party spend to find savings. The new parent company should quickly have a view of spend segregation in categories, tail suppliers adding administrative costs and reducing buying power, or major negotiation opportunities. 4C has worked with a numerous organisations reducing 3rd party spend and making significant cost reductions without resorting straight to headcount reduction. Post-acquisition is often a great reset point to begin this activity.
- Synergy realisation – Many of the synergies within M&A are realised in operations, and executing on them requires procurement and supply chain alignment. This forms a critical part in due-diligence, and engaging a specialist consultancy to evaluate these opportunities is a highly important yet sometimes overlooked activity. Once acquired, carrying out spend aggregation to increase buying power with major suppliers, pooling spends and going out to tender or utilising aligned logistics partners can all create huge savings opportunities. UBS & Credit Suisse will have huge amounts of category alignment, and likely supplier alignment also so the opportunity for cost reduction is extensive.
- Function integration – Aside from the spend itself, the procurement functions need to be integrated if it is a merger. Completing this successfully relies upon right-sizing the team for the new overall organisation spend, assessing the capability within the team and ensuring there is continuity for suppliers. For a distressed organisation that’s been acquired, continuity is key, as well as ensuring the newly formed procurement function is lean. Based on Credit Suisse’s third party spend in the billions, the procurement team will be large and will likely not sit alongside the UBS’s existing team.
Utilising Procurement is a necessity to realise the full benefits of M&A, without its organisations will have to use more aggressive strategies to realise the same savings that can be found within procurement and supply chain opportunities. 4C assists organisations on all of these aspects, and many more such as manufacturing, footprint optimisation and pricing strategies. We have worked with many organisations in distressed situations, either to reduce costs to stay out of administration, or to help improve once acquired.
If you’d like to know more, please get in touch with Andy Hemsley, Head of Financial Services.