Procurement and M&A: Second Wheel or Corporate Development Secret Weapon? (Part 2)
Categories: Procurement Commentary, Procurement Research, Procurement Strategy & Planning, Spend Analysis | Tags: Process and Best Practice
To make procurement a corporate development secret weapon in an M&A context requires thinking outside the box of the usual transactional purchasing and supply chain integration and activities. It requires a “special forces” type of mentality, operating behind “enemy” lines, rather than bringing in a whole army of troops. In the first two installments of this series (see here and here), I explored a number of examples courtesy of Procurement Leaders and previous Spend Matters analysis (from The Hackett Group) on how procurement can get involved in acquisition activity.
Here are a few more ideas:
Use spend analysis tools (with visibility into contracts) and go beyond canned analyses for basic supplier and spend rationalization strategies. For example, consider the opportunity for broader rebates and tiered savings based on hitting joint spend thresholds that could be resident in existing contracts that one party holds. Or consider category-specific spend analysis approaches inside larger spend categories to explore how changing specifications and requirements (e.g., service levels, on-time performance) can affect pricing based on agreements that are already in place. There are so many outstanding spend analysis experts out there who can help beyond the basics – Opera Solutions (which acquired BIQ), SciQuest/Spend Radar, BravoSolution, and Zycus are just a few.
Run, don’t walk to the next generation of procurement “e-discovery” tools from providers such as Seal Software, which can identify anything that remotely looks like a contract within a company’s IT environment (notebooks, desktops, servers, etc.) and then analyze contract-based opportunities at the clause and price/term level as early in the M&A process as possible. Don’t ignore the analytics component of this time of investigative effort either (e.g., to rapidly identify agreements subject or not subject to change of control clauses)
Use procurement as a key enabler of risk management analysis during all stages of pre- and post-merger situations. Risk management can include looking at general margin/pricing risk, commodity price (and availability) risk, supply chain risk (tier one), multi-tier supply chain risk, purchasing controls, and much more. If risk analysis in M&A environments is left to traditional due diligence and post-merger integration efforts by standard Big 5 due diligence consultants and internal audit types rather than a centered procurement/supply chain view into risk, much will be lost.
The chance for small, specialized procurement teams equipped with the right sets of tools and services to prove transformative in M&A situations is an opportunity to create transaction synergies (while avoiding the wrong deals) like no other. Making procurement a stealth corporate development M&A weapon is something that more experienced private equity firms are learning and investing at breakneck pace at the moment. Shouldn’t Global 2000 companies make a similar effort?