By Source One Management Services.
Over the past several weeks there has been quite the buzz over some of the largest and most strategic mergers that have occurred in their respective industries.
I am referring to Pfizer and Allergan combining to form a global giant in the biopharmaceutical sector, Anheuser-Busch and SABMiller working a deal to take 30% of the world’s beer market making them the largest in their industry, and finally the recently confirmed $130B billion merger in the chemical industry of two of the oldest chemical manufacturers Dow and DuPont.
The Pfizer-Allergan merger will bring together two pharmaceutical innovators, allowing substantial opportunities for resource utilization, and research and development in seven therapeutic areas. The collaboration of these two companies will open up an extensive pipeline of programs in varying stages of development, ultimately leading to long-term sustainable growth for the combined business. The estimated $160B billion billion merger will close near the end of 2016 with an expected $2 billion in operational synergies in the first three years following closing.
The Anheuser-Busch and SABMiller merger has been creating a lot of conversation for the past few years. Now that it is closer to reality, the $105 billion merger has craft brewers and regulators in a frenzy. The combined company would assume a third of the global beer market through this union with even greater marketshare in individual geographical regions.
With more than 300 years of history combined, chemical producers Dow and DuPont seek to maximize profits, foster new innovation, and gain market share becoming the second largest chemical manufacturer globally behind BASF. A long time coming, this merger will bring together two industry leaders for the short term (by the end of 2016) with a longer term goal of segmenting the company into three separate publicly traded companies through tax free spinoffs sometime in 2018. The three companies will take strengths from the whole merged company and split into three specialties including agricultural chemicals, material sciences, and specialty products.
Mergers of these proportions have historically been more opposed, so what has changed? In each case we see that antitrust concerns are still a big issue so it’s certainly not the regulations that have changed. One theory is the ability to access new markets such as Africa for the beer business. Others seems more obvious, the ability to expand resources and gain exposure to new forefronts in the industry, such as the case with the pharma merger. In all cases, it’s clear that market share is a considerable driver.
The financial impact to those involved is clear, but what does this mean for supply chain operations?
Let’s take a look at the Dow and DuPont merger. Those of us in the chemical sourcing business understand that it is a competitive arena in today’s industry. There are dominating manufacturers that already take a large segment of the business. These corporations are joined by many smaller players fighting for pieces of the specialty market in order to carve out a unique niche to call their own. This is the same idea with the Anheuser-Miller merger. Craft brewers already strive for a minuscule percentage of the market, with mergers of this size they fear that percentage will diminish.
The other, more obvious impact and first assumption from the consumer side of these mergers and acquisitions is that with less competition in the market, prices will assuredly increase. Of course there are some measures in place through regulatory agencies to ensure this does not become out of control, but it’s likely that this will impact purchase costs. On the positive side of things, these mergers will open up a plethora of new opportunities in the market for new product innovations for consumers.
However, market share and pricing concerns are further down the line and are contingent upon the success of the merger. One reason that is noted for the ultimate failure of a merger, especially those with such visibility is improper planning in the supply chain. While opportunities are amass in some facets of a merger, there is the dark side that includes layoffs, facility shutdowns, and restructuring. All of which are happening amidst ongoing operations.
What these companies need to focus on is proper planning. Just like we talk about in any transformation initiative, you can have the grandest of ideas for a future vision of something but without taking the necessary and carefully laid out steps, you are doomed for failure. Supply chain operations should be at the forefront of M&A transition activities as they will have the most impact within procurement and the organization.
When two companies are combining forces they are assimilating their spend categories, the suppliers within them, and the correlating contracts. A roadmap needs to be developed by strategic sourcing and procurement that starts with an in depth review and gap analysis of contracts to determine where overlap exists and where alignment can be made. This review will structure the next steps in determining which savings activities should be pursued and in what timeframe. The low-hanging fruit can be approached first with more strategic supplier relationships following down the line.
These planning activities need to be led by a dedicated team that will follow through the pre-planning and facilitation of the activities to fruition. Without a dedicated team these types of activities often fall to the wayside and lose traction over time. This team is critical in gaining executive support and engaging stakeholders throughout the process. Ultimately this team can be a carefully selected team of internal individuals or a non-bias outside party with the expertise to complete planning and execution activities.
All things considered, M&A activities create a great deal of opportunity and with that a great deal of work by all involved to ensure the success of the collaboration between businesses. Personally I am excited to see how these particular mergers pan out over the next few years and will be following their activities and how successful they are.