Improve M&A Success with Supply Chain Design
This post originally appeared in Institute for Supply Management (ISM)
In a global M&A market that even experts describe as unpredictable, this is certain: Deal velocity will ramp up again, and when it does, preparedness is the difference between champagne toasts and failure.
For companies with a physical supply chain, network design is the secret weapon dealmakers use to rapidly evaluate the cost, service and risk trade-offs of mergers, acquisitions and divestitures — before investing a dime.
Equally important, and beyond the physical elements, are the policies embedded in source, make and deliver processes. M&A analysts need to consider these elements to understand if there (1) are potential synergies for scale or (2) obstacles in combining the organizations.
The M&A Deal Roller Coaster
Despite the specters of rising interest rates, inflation, political strife and supply chain uncertainty, global M&A volumes soared 64 percent in 2021 to an all-time record of US$5.9 trillion in value. Since then, the picture has shifted significantly, with overall global M&A value plummeting 44 percent in the first half of 2023.
According to Bain & Company’s M&A Midyear Report 2023, “When the fog lifts on interest rates and macroeconomics, we’ll see buyers eager to do deals and a backlog of assets for sale. When that happens, dealmaking is likely to resume faster than many have anticipated and favor the buyers and sellers that are best prepared, focused, and ready to act.”
As buyers and sellers navigate this erratic deal environment, failure rates of between 50 percent and 90 percent continue to dog dealmakers. In its 2022 M&A survey, PricewaterhouseCoopers (PwC) found that only 14 percent of respondents to reported significant M&A success across strategic, operational and financial measures.
A resilient supply chain network design is crucial to an organization’s success as it evaluates capital expenditure (CapEx) opportunities like mergers, acquisitions and divestitures in an increasingly volatile market with evolving variables and risks at every turn. A CapEx plan that leverages supply chain design to consider the synergies and redundancies of the end-to-end supply chain of both companies is crucial to deal success.
Counterintuitive to these efforts is that cost shouldn’t be the sole metric to determine if a merger makes sense. Resiliency, risk, time to market, service and environmental, social and governance (ESG) metrics are all becoming equally important to stakeholders and board members.
Revising Logistics Strategy
M&As should always prompt a new logistics strategy. With new products, locations and markets at their disposal, companies must reevaluate their supply chain design to ensure they’re operating at peak efficiency while maintaining a high standard of customer satisfaction.
By modeling the future-state supply chains involved in potential deals, companies get a 360-degree view of the impact of CapEx decisions on:
- Financials, including cost to serve and margin to serve
- Service elements like order fill rates and time to market
- Risk, both internal and external elements
- ESG, including carbon footprint, fair trade sourcing and good government country sourcing.
Questions to Ask Prior to M&A Decisions
Organizations can use supply chain design models to evaluate the potential financial and service impacts and risks associated with deals, which typically affect the larger scope of the supply chain design.
Companies should consider the following questions:
Read the Full Article in Institute for Supply Management (ISM)