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What If? Is a Big Question in the World of M&A

A no surprises strategy is underpinned by the risk axes of severity and likelihood

In the first blog in this series, it was noted that everyone involved in a merger, acquisition or divestment needed to sign up to a ‘no surprises’ strategy. It is a strong guiding principle, and it is worth delving deeper into what a no surprises strategy looks like from a procurement perspective.

We are talking about risk. The more objective our perspective the more likely it is that we will make accurate and reliable assessments. The first step to gaining that perspective is to ensure we have a holistic view of the way a transition – acquisition, merger, or divestment – is going to occur.

There are several practical dimensions that must be addressed, in addition to vital leadership and strategy, which are critical success factors for any significant change/transformation program.

Ultimately, we are assessing the likelihood and severity of risks

In a recent study, it was reported that 67% of M&A programs ended in failure, which is often due to complexities in data. Procurement and supply chain specialists play a critical role identifying, managing, and mitigating data risks, which directly influence four key dimensions: people, processes, contracts, and technology. They make for a good starting point.

When we are assessing these four dimensions, we need to have two questions in the back of our mind (i.e. signs we look for), that expand on the classic: What if?

  1. How likely is it that something will go wrong?
  2. If something does go wrong, how severe could the consequences be?

In terms of people, we need an understanding of the current state of the supply chain structure and who will be affected and how. This will vary greatly depending on the type of transaction.

Similarly with processes, we need to know the current state and we need to map what the intended future processes will look like.

At a contractual level we need to have a very clear understanding of what is changing. Some contracts might remain unaltered, others may be transferred, and some may be terminated. Moreover, entirely new negotiations may be required, or the occurrence of the transaction itself may trigger clauses in a contract that creates a new risk.

In relation to technology, again, we need to be sure we understand the current state environment. From there we can ask if new architecture is required. It is also likely that new systems and platforms will be required, as well as new support arrangements to be established. Given technology projects and operations are precarious at the best of times, it is essential that the right expertise and resources are devoted to this business-critical dimension of a transaction.

From these four basics we then must consider two higher order and more abstract dimensions, governance, and the new operating model.

The difficult with these two dimensions is that risks may be far less apparent. History is replete with stories of management and cultural failure following acquisitions, mergers, and separations. Not only do procurement and supply chain structures need to be understood, but it is vital that changes to structure and style beyond ‘Day 2’ (operational ownership) need to be clearly articulated, accepted, and supported by the people who will be affected. All this must be addressed well in advance of ‘Day 2’ dawning.

Likewise, with a new operating model, people need to be informed, engaged, and mobilised to buy in to the new model. After all, they are the people who will bring the new entity to life.

Proactive leadership helps eliminate surprises

You will no doubt agree, we are talking about transactions that are at the deep end of the pool. Simply throwing resources at the various dimensions will not be enough to significantly reduce the severity or likelihood of risks to an acceptable level.

Most would assume that in any acquisition, merger, or divestment there would be strong executive leadership. However, from a procurement perspective, strategic leadership in many organisations is not part of daily practice for a procurement team. So, it needs to be called out. There must be mature leadership to ensure the transaction’s objectives are acted upon. Moreover, there must be a strategic focus on meeting the constrains of time and budget. And leadership must manage the supplier base and relationships from beginning to end.

Again, for most of us, these types of transactions do not sit naturally in our organisation’s capabilities. So, it is no surprise (so to speak) that external expertise and resources will be required. Decisions around what these are must be addressed at a leadership level.

Although governance has been discussed earlier, it needs amplification in terms of where it sits in relation to organisational leadership. There are few, if any, decisions and actions more deserving of governance excellence than acquisitions, mergers and divestments. The governance framework must be fit for purpose, to get through the transaction, and to ensure desired synergies or other strategic goals are pursued beyond ‘Day 2’.

Also touched on before, stakeholders must be brought inside the tent and they need to understand the transaction and their assistance is vital. This will only happen from strong leadership and top-down support. Remember, there can never be too much communication on a program of this nature.

And finally, there is data. It is the alpha and the omega in such transactions, which is essential to bringing risk severity and likelihood into manageable range. Data must be transparent across streams, so that all can leverage each other, and so no one is surprised as the transaction moves from each day to the next.

Equally, data gives us a baseline. It allows us to quantify objectives, scope, and expectations, while also allowing us to put the right structure in place for various work streams and outcomes.

Data or, more precisely, evidence, is central to the objective perspective we need. Do not resist it or allow others to avoid it, it must be brought into the light, where it is much harder to be surprised.

With the current levels of M&A still tracking at record highs, procurement and supply chain specialists have an important role to play in improving the success rate of M&A transactions.

Appropriately planning and managing risk across the four key dimensions of a deal (people, processes, contracts, and technology) will ensure M&A and transformation directors aren’t left to deal with a poisoned chalice during or after a transition or separation.