Procurement’s Role in M&A

By Kay Ree Lee, Director, The Hackett Group Procurement is often an overlooked but critical function in any merger. Oftentimes, forecasted synergy savings are not achieved in an integration because rigorous processes and activities are not properly planned, understood and executed. However, with proper oversight of the processes and activities before the deal is closed and immediately afterwards, , Procurement can ensure that it delivers the synergy savings that CEOs and CFOs look for. The best way to approach an integration is to think about the work in several different waves: pre-deal closing, during the first 100 days, and continuous improvement. Pre-Deal Closing There are many considerations while working through the details pre-deal closing, especially since both organizations are legally restricted to a certain extent in collaboration and sharing confidential information. However, there are options available to ensure that value post-deal is realized. One concern in collaborating pre-deal closing is sharing confidential data, as combining organizations are not permitted to share detailed purchasing or spend data with each other. However, this is a critical component of the pre-deal closing as it allows the acquiring organization to harmonize the spend data, create logical data structures and spend categories, and identify potential savings opportunities and projects. The typical workaround to this issue is to create a Procurement ‘clean-room’ staffed by external parties that is provided with visibility into all the data needed. This team  can serve as the Project Manager for spend analysis and identifying sourcing savings capture. From this initiative, the organizations can prioritize and launch projects that immediately deliver significant results to both organizations. Some of the projects may even be launched pre-deal closing to ensure that the savings are captured quickly. In a merger integration, there are typically two main types of synergy savings to capture:
  1. Reduce costs
    1. Reduced spend on goods/services purchased
      1.                                                                i.      Both organizations buy the same items and should technically pay the same price – quick win
      2.                                                              ii.      Increased volume of purchases to the same suppliers should result in volume discounts – quick win
      3.                                                            iii.      Sourcing of new categories of spend with combined spend of both organizations – sourcing project
    2. Elimination of redundant work
    3. Improved asset utilization and productivity
  2. Increase revenue
    1. Collaboration with internal stakeholders to create new or enhanced products through the combined organizations
First 100 Days The first 100 days is typically busy for Procurement as the organization continues to work through numerous and simultaneous changes to the organization. However, most of the activities for the first 100 days should be centered around:
  • 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.)
Continuous Improvement Beyond the first 100 days of the deal closing, the combined organization should be firing on all cylinders as it continues to work toward additional savings, an enhanced organization, updated policies and procedures, and the addition of new capabilities. In general, the work would continue to center around:
  • Evaluation of new organization’s category demand management requirements, patterns, and profiles
  • Ensuring change management is complete for organization structure, processes, policies and procedures
  • Increasing savings capture through re-sourcing of new categories
  • Integration of systems and tools
As the Procurement function tends to provide significant value and synergy savings to a merger integration, the function should be on the top of every CEO and CFO’s list in an acquisition. A merger of two organizations will not only provide significant savings to the organization but will also yield enhanced capabilities, resources and future opportunities.