Podcast #37:
Four Keys to Success with Mergers and Acquisitions
Transcript:
By Jim Tompkins, CEO, Tompkins Associates
Welcome to the eighth series of our Global Supply Chain Podcast. Hello, this is Jim Tompkins, the President and CEO of Tompkins Associates and Tompkins International.
I am very pleased to be with you today to talk about one of the most important subjects impacting many supply chain executives today.
This is the topic of mergers and acquisitions. This-six part series on mergers and acquisitions will include this overview presentation given by me, and then five valuable, focused sessions describing the overall process of M&A.
The second session will be presented with Steve Ganster of our China-based company, Technomic Asia. This session will discuss the development of an M&A strategy and the identification of potential M&A targets.
The third part of this series will be done with Valerie Bonebrake, a partner in the Global Supply Chain Services dimension of Tompkins. Valerie will present the topic of due diligence with a strong emphasis on what interests us the most in this podcast: Supply Chain Due Diligence.
The fourth part of this series features Kent Kedl on the challenges of getting the deal done. Kent, also from the Tompkins International firm, Technomic Asia, will cover many of the lessons learned to lay the foundation for the success of mergers and acquisitions.
The fifth part of this series will cover a topic that has become more and more important: the challenges of global M&A. Kim Woodard, who has been doing global deals for over 35 years, will be our guest on this portion of the series.
Lastly and of critical importance, Gene Tyndall, who has led supply chain integration projects around the globe following M&A, will be with us on the critical subject of supply chain integration.
So I am really excited about this series as we present to you a level of expertise never assembled before. The total of our six speakers has over 180 years of experience of leading organizations through M&A.
So, let’s get started! I am preparing this podcast on February 20th. Allow me to just grab two headlines that came across my desk last week. First on February 16th the subject line read “Medical Devices M&A Activity Up 154%.”
Wow! Up 154%?
Secondly, a headline from February 17th, “ConAgra CEO More Willing to Make Acquisitions.” The ConAgra CEO, Gary Rodkin, is quoted as saying “That’s just the way of the world, the big get bigger. That consolidation by retailers and manufacturers looking for new ways to cut costs were factors that would drive food industry mergers. “ At the same time, we note that the overall deal volume is down.
In 2007 the M&A deal volume hit an all-time record of 4.2 trillion dollars.
2008 saw a 53% drop to $2.9 trillion, and 2009 saw an additional drop of 32% to $2 trillion. So no question, the total dollar value of deals is down. But, before you turn off this podcast let me help you with some additional facts:
First, the huge drop in the dollar volume of M&A has been driven more by the reduction in the number of private equity deals as opposed to the strategic corporate deals.
Secondly, the multipliers being paid now have substantially come down from their peak in 2007, so the prices being paid for acquisitions are down.
Thirdly, many firms are doing M&A with an orientation towards becoming more global.
And lastly, many of the deals are being done with already available cash, so the deals are moving very quickly.
So we are seeing strong strategic M&A activities, as companies shake off the funk of the great recession and focus on an aggressive comeback strategy of returning to growth in market share and increased profitability going forward.
So although private equity M&A is slow and will remain slow throughout 2010, corporate M&A is very, very hot and presents opportunities for companies to pass their competition, and you as a supply chain professional must be involved so as to assure M&A success. The next five parts of this podcast series will cover the M&A process and present the guidelines for your active participation in your organization’s M&A process.
What I want to present in the rest of this podcast is what I believe are the four keys to your active participation in successful M&A. The first key to your active participation in the success of your organization’s M&A activities is to be involved.
Be involved early, and stay involved with every aspect of the M&A. It may very well be true that the supply chain may not be the driver for doing a specific deal, but this does not mean the supply chain is not an integral component of the success of the transaction. I am familiar with a pharmaceutical firm that made an acquisition totally from the perspective of how a product fit into their product offering.
The acquisition was brilliant; unfortunately it was a total failure as the assumption was made that the distribution network of the parent could handle the distribution for the acquired firm. The distribution was not compatible, and by the time the company recovered, significant customer dissatisfaction and loss of market share had resulted.
So it does not matter why the acquisition is made, the supply chain professional from your firm must be engaged from the outset. Treating the supply chain as an M&A afterthought is a sure path to M&A failure. The second key to your active participation in the success of your organization’s M&A activities is to fully assess the impact of the M&A on the supply chain.
The end-to-end supply chain of the Plan-Buy-Make-Move-Store-Sell must be assessed. Questions like, Will the acquisition reduce costs across the supply chain? Will the acquisition result in increased margins? What will be the impact of the acquisition on our suppliers, on our customers? Will the acquisition impact inventory levels, the logistics network, the operation of the distribution centers, the level of customer service offered, our transportation or logistics service provider relationships or contracts, and more and more.
Each aspect of both our organization and the firm we are acquiring needs to be reviewed from end-to-end across the entire supply chain.
The third key to your active participation in the success of your organization’s M&A activities has to do with the technology integration that supports the supply chains of your firm and the acquired firm.
Decisions need to be made as to which technologies to retain, which to be integrated and which to be replaced. Depending upon the acquisition it is possible that the operations of the acquired firm may come from the technology previously in use, or it is possible that you will only be able to buy technology support from the prior owner of the business, as they are only selling you a portion of their business, and they will retain their technology for their remaining operations.
It is important that the supply chain application decisions be done by the supply chain management, and that we recall that the correct order for decision making is first, supply chain strategy, then, supply chain process and then, supply chain technology. It is important to keep upper-most in our minds that technologies enable processes, and so the processes must be determined before technologies are selected, and that the processes follow our strategy for the supply chain integration.
So the major supply chain applications and the related data management issues must be addressed based up the strategy and process decisions put in place to assure smooth operations with no interruptions to our customers and our suppliers. Getting past these technology challenges quickly is critically important and leads right into our fourth key.
The fourth and last key to your active participation in the success of your organization’s M&A activities has to do with speed, acceleration and urgency. Of course, you need to be thorough and methodical, but you must also be quick.
This key actually needs to be overlaid on the first three keys. What I mean by that is that with the first key:
You must ensure your involvement accelerates the process and does not slow it down.
With the second key: You must ensure that assessing the impact of the M&A on the supply chain does not get buried in data, but that you look strategically at the supply chain from a “how will you function on Day 1” and “how will you function on Day 100.” The long term solutions can be developed during the first 100 days, but speed for start-up is key and must be a priority.
Third, your review of technology must not get pulled into an endless analysis of software applications, but must rather address: how you will function on Day 1 and Day 100. Again, time needs to be made later to handle the details; up front the process must focus on rapid start-up.
Now, some may say that the devil is in the details and traveling too quickly up front does not provide adequate time to address these details. I understand, but let me be clear, a slow, detailed, methodical integration of an M&A transaction has a very clear result: Failure.
M&A start-ups must be quick. Yes, some things will fall through the cracks, but if our suppliers, customers and entire organization does not see us working as one on Day 1, and with some good positive momentum by Day 100, the acquisition will fail.
So focus on speed for all you do for M&A, and the likelihood of success will be much higher. This brings us to the close of the first part of this podcast series on mergers and acquisitions.
I am really excited about this series, so I very much look forward to being back to you in two weeks when I work with Steve Ganster to discuss the development of M&A strategies and the identification of targets. I look forward to speaking with you real soon.
Additional podcasts are available - see the list here.
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