In the past few years, I've made numerous comments about how private equity firms (see a post here) are getting more involved in bottom-line results in their portfolio companies by involving themselves either directly or indirectly with procurement and supply chain activities at their investments. Yet companies engaged in their own M&A activity have as much to gain (or lose) as private equity firms doing the same. In fact, the Spend Management nuances that take place in bringing two companies together can often be far more complex and potentially disruptive compared to PE buyouts of companies. A recent whitepaper that I read by Efficio Consulting does a useful job of highlighting some observations from successful procurement involvement in M&A activity (even if does fall back on too many consulting frameworks).
A few of the paper's key points bear repeating here. For one -- and this is an observation I can't reiterate enough -- "the larger player does not necessarily have better pricing." I'd further break out this statement and look at both contract pricing and realized pricing, as the two aren't necessarily the same. I also agree with Efficio when they note the importance of "not playing the our contracts vs. your contracts" game between merged parties. In fact, a new single contract with a supplier that can come from renegotiating two prior individual ones can often be far better than either one the individual buying organizations realized before.
It goes without saying (and Spend Matters has said it many times before) that the more the function "is involved in the process, the greater the clarity that procurement can provide on the opportunities and the risks that procurement offers in the post-merger situation." In fact, I'd argue that procurement should have a seat at the due-diligence table as well, ideally even before an LOI is signed. After all, the analysis of procurement synergies should play a role in not just realizing deal synergies, but coming up with an initial valuation as well.
In Part 2 of this post, I'll share two additional lessons from Efficio as well as some more from our own research and learning on the subject.