Procurement and M&A: Second Wheel or Corporate Development Secret Weapon? (Part 1)
Last week I referenced a short post on the Procurement Leaders blog that Paul Teague wrote. The post explored some of the procurement priorities and challenges behind the American Airlines and US Airways combination. While the story surfaces a few of the key procurement issues that can play out in a typical merger situation, it did not get at some of the core roles and responsibilities that procurement can play on a timeline-specific, generalized M&A basis (e.g., initial due diligence/market scan, formal due-diligence, post-announcement, closure, initial post merger integration, steady state).
I personally think The Hackett Group’s Kay Ree Lee did an excellent job covering the topic in a guest post for us last year that was titled Procurement’s Role in M&A. In his analysis, Lee breaks down different procurement activities based on a high-level view of transaction workflow.
For example, in a “pre-deal close” environment, he suggests it’s still possible to have procurement loosely involved (with NDAs) by having a “procurement clean room” staffed with appropriate expertise that can serve in the role of “project manager for spend analysis and for identifying sourcing savings capture.” This group can help identify ways of reducing costs through a combination. For example, “reducing spend on goods/services purchased, elimination of redundant work, improved asset utilization and productivity.” And it can also help on identifying “increased revenue” opportunities as well through “collaboration with internal stakeholders to create new or enhanced products through the combined organizations.”
Following deal close, the first 100 days is typically a blur of activity for procurement organizations. Lee suggests during this time that organizations focus activity on the following:
- “Implementation of new, consolidated organizational structure”
- “Preparing plans for systems integration”
- “Integration of processes, policies, and procedures”
- “Execution of savings capture projects – quick wins vs. full-blown sourcing projects”
- “Continued operational support for combined organizations (Help Desk, FAQs, Supplier Communications, Rebranding efforts, etc.)”
In our experience, for companies going through acquisitions that resemble mergers even if they are not named as such (e.g., when the companies are at least close to being a similar size), the initial 100 days can also be a great opportunity to go beyond the basics listed above. Additional activity can include exploring such areas as contract term usage and standardization and spend analysis that goes beyond the basics of identifying spend and supplier rationalization opportunities.
In the final installment of this mini-series exploring procurement and M&A, I’ll take a look at some of the more advanced use cases for procurement activity in both pre- and post-merger environments.