M&A Value Creation: Procurement Analytics Critical
M&A Value Creation: Procurement Analytics because cost savings are seen as a key value driver in any M&A deal by institutional investors and shareholders alike. The ability to deliver this value, therefore, is critical to the credibility of the CEO and the senior management team.
1. The Brave CPO: M&A Value Creation: Procurement Analytics Critical
With still many mergers failing to achieve their expected value, CEO’s are under pressure, and CPO’s must step up to the challenge to deliver savings both pre and post the deal closing.
Since both the success of the merger and the CEO will be judged on how effectively the business fulfills its promise to deliver shareholder value, the CPO should have the full attention of the CEO. The Brave CPO will grasp such an opportunity to demonstrate their skills and the strategic power of procurement.
2. How does Procurement Analytics Support M&A success?
With around 50% of merger value coming from the supply side, visibility into all aspects of procurement data is critical. Applying procurement analytics pre-closure in ‘clean room conditions’ can ensure management values the target firm accurately, and has the foundations for synergy realization established before the deal is closed.
The due diligence phase requires the ability to extract and analyze data quickly to identify synergies and value creation opportunities.
a) Spend Analysis:
Spend analysis supports the development of a robust category structure that organizes spend around market-facing spend categories and having a well-defined category structure provides the CPO with a significant advantage when evaluating the potential from a merger.
Having the capability to extract information from disparate financial systems and cleanse and enrich this data to build a merged category taxonomy, supports the ability to map joint spend to major categories.
With the data cleansed analysis of category strategies and purchase, terms can be compared across both companies to identify situations where the combined new company would be:
- Paying different prices for the same items
- Using different items for the same application
- Using common suppliers for goods and services
- Using different suppliers for goods and services
- Dealing with non-preferred suppliers
- Using too many suppliers to leverage the companies purchasing power.
There are enormous benefits to be gained from undertaking an in-depth spend analysis as opposed to simply conducting a quick contract comparison between suppliers.
b) Contract Management:
Supplier contracts for both companies need to be gathered. Without access to a centralized repository, this can be a challenging task. The ability to access a database that provides detailed contract information such as:
- start and end date
- cancellation rights
- assignment rights etc.
provides a further benefit to CPO’s managing a merger by supporting due diligence, identifying future resourcing constraints and more informed prioritization decisions.
The opening of the books is always a nervous time for the incumbent CPO. There is, however, need to go beyond the competitive bravado of “my price is cheaper than yours” comparisons.
Mergers that achieve the highest returns go beyond simple price comparison to an analysis of total cost in quantitative and qualitative terms in both companies.
c) Supplier Management:
- Suppliers at risk of bankruptcy
- Suppliers that raise sustainability concerns
- Ethical labor issues that could damage the companies reputation
- Supplier diversity issues
- Supplier scorecard data and key performance indicators
Such data provides the visibility into issues that require corrective action plans and compliance reporting.
d) Integration Planning
- Structure of the new organization
- Supplier and customer impact analysis
- Supply chain integration
- Value lever identification
- Quick win initiatives
- Sourcing project prioritization
- Negotiation strategies
- Ready to launch RFP’s
- Agreement on benefit tracking and budgetary adjustments
- Standards and tools review
All of this must be done in collaboration with legal counsel while continuing “business as usual” in each business.
2.2 Post closing
The pre-merger planning should ensure, a high degree of executive alignment is already be in place. However, in the integration phase, resistance from middle management can still provide a considerable obstacle to successful implementation.
Using hard data to overcome resistance
Established relationships with suppliers, encroachment upon current responsibilities, and even a sense of feeling threatened can result in objections raised to senior management, who do not possess the analytical data to verify or overcome them, elevating a sense of risk.
The hard data available from Procurement Analytics is the key to success. It brings objectivity to an otherwise emotional or anecdotal argument. By using hard data gained from the analysis, procurement can often bring new information to the table that was previously unknown to stakeholders to support decisions and navigate internal challenges.
3. M&A Value Creation: Procurement Analytics Critical
Procurement is one of M&A’s most important activities delivering increased value by:
- Buying goods and services more effectively, and
- Operating the combined supply chain more efficiently
CPO’s can position themselves for advantage over their counterpart in the merged organization, with well-established category taxonomies, contract, and supplier management disciplines. Capitalizing on this advantage requires strong pre-merger procurement planning. Here, access to granular procurement data is the key to strengthening procurement performance. The right Procurement Analytics tool, one capable of accessing multiple databases across both organizations, providing a single version of the truth, therefore, can make the difference between the CPO being crowned king in the new organization or finding themslves seeking an alternative position.