Spend Matters welcomes this guest post by Diarmuid O’Donoghue, of GEP.
We are now well on our way into the 2015 Holiday season, and Christmas carols are ringing in the air on most of our streets, TV ads and in our workplaces. Many of us have been attending our Christmas parties on the backdrop to 2015 becoming one the biggest years ever recorded in terms of mergers and acquisitions (M&As). The total value in M&As that will be signed by year end 2015 is now reported to be $4.7 trillion. This level of activity has not been seen since 2007, as companies are now encouraged by cheap debt, beneficial tax arrangements, the need to keep pace with consolidating rivals and pressure to become more efficient in a slow growth economies globally.
Regardless of the reason behind any M&A deal, the question is always asked, “How involved and effective has procurement been during the M&A process?” Procurement is in the spotlight from day one, as it is looked on to drive maximum value from any deal. Listed below are several considerations CPOs need to consider during M&A.
Ensure a Seat at the Table for Procurement
Procurement may not be the primary reason behind an M&A deal, but ensuring the involvement and influence of procurement during the due diligence process will help proactively identify synergies that can be used to either set or help meet savings targets.
Identify Procurement Opportunities
Establishing a clean room early in the process, to facilitate the collection and review of spend and contract data, will ensure the strategy and planning of key sourcing synergies. Subject matter experts with a familiarity with both organizations should play an important role in identifying these opportunities. It is key that the CPO assesses the current state of both companies and, along with his leadership team, envisages the future state and “cherry picks” the best in class suppliers from both companies.
Clear Communication to the Supply Base
On day one, the CPO should distribute a formal letter to the supply base outlining the changes and what is expected from key supply partners. There should be no confusion with key suppliers that may have an impact on the organization's ability to deliver goods and services to the end customer.
Build Credibility with Demonstrated Cost Savings
The quick and effective execution of these sourcing-related synergies can build a strong name for the procurement organization and significantly contribute to the overall savings target for the M&A deal. By publicizing the major success stories throughout the company, employees will be able to see that procurement-related changes have positively benefited the entire organization.
M&A activity does not look likely to slow down into 2016, which will result in CPOs and procurement continuing to be asked to add value during each M&A deal.
For more interesting thinking on procurement, visit the GEP Knowledge Bank.