3 Ways to Be Successful in Merger and Acquisition Activities with Supply Chain Design & Planning
M&A as a business growth strategy could be on the rise in 2021, having a positive impact on economic recovery following a year of uncertainty impacted by COVID-19. PWC believes that the M&A recovery that began in the second half of 2002 will accelerate in 2021, as corporate and private investors have access to capital and can pursue deals to build scale and expand scope. Their PWC US Pulse Survey from November 2021 reported that 53% of US executives said their companies plan to increase M&A investment in 2021.
Despite the increasing numbers, failure rates for M&A initiatives are extremely high. Depending on which report you consult, M&A initiatives have a failure rate of anywhere between 50 and 90%. Failure to consider the synergies and redundancies of the end-to-end supply chain of both companies is arguably a top contributor to the shortfall. How can businesses improve their chances for M&A success, reduce risk, and create a roadmap for success?
Apply Supply Chain Design Across M&A Activities for a Better Future State
Use supply chain modeling to effectively:
- Plan M&A strategy
- Optimize the new supply chain
- Design a future supply chain
- Predict supply chain performance
Supply chain design technology enables companies to create a digital supply chain to model their supply chains, evaluate alternatives, optimize the network structure, and simulate multiple scenarios in order to predict the resulting operational performance of the merged organizations. Let’s look at opportunities to leverage modeling across all stages and types of M&A activity, including:
- Pre-Merger
- Post-Merger
- Divestiture/Spin-Off
1. Pre-Merger Analysis
The pre-merger phase is uniquely challenging in that access to data for potential markets and acquisition/merger targets is often difficult to access. Strategy building and decision making relies heavily on assumptions rooted in available data. Companies can use supply chain network models for supply chain planning and to visualize and analyze M&A strategies and perform critical sensitivity analysis on key assumptions.
Using supply chain analytics, scenario planning, and supply chain design during this critical phase gives companies the insight and decision support needed to:
- Avoid costly mistakes such as over-estimation of potential synergies
- Compare alternative M&A targets
- Analyze the most effective strategy for entering a new market
2. Post-Merger Analysis
Once an acquisition has closed, it is often up to the supply chain executives and their teams to help realize the operational efficiencies promised in the board room.
With two unique, complex operations often including overlapping assets, products, customers, and suppliers, this is not an easy task. Supply chain modeling and design is essential to help identify and evaluate the array of possibilities.
The benefits of modeling and supply chain design at this phase include:
- Finding short-term improvements with limited supply chain disruption
- Simultaneously analyzing big-win but potentially more disruptive changes
- Creating a more accurate projection of cost savings and operational efficiencies that can be reported to executives, the board, and the investors
3. Divestiture/Spin-off Analysis
In a divestiture or spin-off situation, previously shared resources need to be separated, manufacturing and distribution capacity is reduced, and shared customers and suppliers may need to be allocated to one or the other entity. Supply chain modeling can be employed in these situations to enable data-driven decisions on which sites, products, customers and suppliers to keep and which to eliminate, as well as for costing of supply chain operations with new facility and lane volumes and capacities.
The benefits of using detailed supply chain modeling during a divestiture or spin-off include:
- Identification of the capacity requirements and product flow volumes for the resulting businesses
- Data to drive the negotiation of new business terms with transportation service providers and suppliers
- Implementation timeline for the transition from shared assets and resources to independent status
Customer Example: Making Data-Driven Site Selection Decisions
One of North America’s largest packaged foods producers acquired a major frozen food manufacturer. With fuel costs on the rise, the company needed to re-evaluate their inbound and outbound distribution strategies given the expanded network. Specifically, which distribution centers (DCs) should service which customers, what the optimal number and location of DCs was, and what the fuel cost “tipping point” was where the optimal network would not be advantageous.
A network optimization model was used to establish and validate the baseline merged supply chain, determine the optimal network configuration, and conduct sensitivity analysis.
The analysis showed that savings could be achieved by simply realigning which customers were sourced by which DCs, eliminating redundant shipments coming from multiple sources, and reducing expensive cross-country shipments.
Points to Remember
Mergers and acquisitions introduce an immense number of options for the design of the new organization’s future supply chain. Redundant facilities, assets, suppliers, customers, and products set many M&A efforts up for failure. Using modeling technology to visualize, analyze, and optimize the current and future supply chains can help significantly reduce risk and provide a data-driven roadmap for success.
