Use the merger as an opportunity to re-build. Both tactics help accelerate value capture so that the cash register is already ringing when Day 1 starts.ĥ. In some cases, even supplier negotiations may be possible based on tiered pricing or three-way supplier non-disclosure agreements. A clean team can identify initiatives that can be executed prior to deal closing, such as policy changes that bring the two companies closer. A few companies are successfully pushing those boundaries. The traditional thinking is that synergy identification happens before Day 1, and synergy execution after Day 1. When possible, launch value-capture initiatives before Day 1. It's surprising how many companies disregard this basic requirement, and then painfully realize after Day 1 that their definitions of spend in each category are different.Ĥ. You need to know the starting point in order to estimate the opportunity from spend consolidation. Mapping spend between two legacy organizations to a common taxonomy is difficult, but a must-have to ensure an apples-to-apples spend comparison. Build the right foundation: a combined spend baseline and taxonomy. What differentiates a successful merger from an unsuccessful one is a company's ability to zero in on the biggest synergy initiatives and build confidence in management's ability to deliver impact.ģ.

These issues are important as hygiene, but we would argue that they are truly table stakes. In most mergers, management spends a disproportionate amount of time and effort on ensuring that suppliers will continue to supply product, financial transactions will continue to flow, and so forth. Avoid over-emphasizing business continuity. Failing to take advantage of this capability can lead companies to pass on attractive deals or pursue ones that offer too little upside.Ģ. Procurement's perspective is more likely to be truly comprehensive, encompassing the entire suite of options discussed later in this paper. This is a missed opportunity, since procurement experts can quickly estimate the synergies' full potential to inform the deal model and economics. Too often, procurement isn't brought in until after the target has been identified or the synergies have been estimated-or, in some cases, until after the deal has been finalized. Engage procurement early in the deal process. The impact these organizations have achieved illustrates multiple lessons-and a few surprises.ġ. We've seen many companies across industries use procurement savings as an essential step in a successful merger integration. Shortfalls in procurement synergies, on the other hand, seem to be a symptom of larger problems in a merger: a landmine to avoid (Exhibit). Moreover, analysis of an Economist Intelligence Unit survey of 150 mergers shows that achievement of procurement synergies correlates strongly with a merger's overall success. Yet even today, procurement is often viewed only as a secondary source of savings-despite the fact that in our experience, it represents on average 25 to 40 percent of a merger's total cost-saving potential. Better to find savings from suppliers than from headcount reductions or complex operating-model changes. Consequently, the procurement function represents a potential goldmine in mergers, and one that's relatively lower-pain as a source for cost reduction. Although many factors account for the spate of deals, cost synergies often rank as among the most powerful attractions for deal-making.īut which costs are the first priority for synergies? The reality is that external spend often represents the largest share of a company's cost of goods sold. Over the eight years from 2009 to 2016, merger activity in the US has grown by about 14 percent a year. A dozen lessons help separate the goldmines from the landmines. It's easy to underestimate just how important procurement is in finding merger synergies and executing on them.

Mange synergy labs