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Surviving a M&A: The Customer Perspective
In recent posts over on Sourcing Innovation, we have explored the M&A Mania (All Aboard the M&A Train!, The M&A Mania Ain’t Over Yet ... But ..., and M&A: And the Mania Continues ...) as a result of a number of big mergers and acquisitions that have happened in the Supply Management space this year. Why? Because, at the end of the day, changes inevitably occur, and in some cases the change is not always the change the customer hoped for.
The Fundamental M&A Synergies
Acquisitions always give one a lot to think about, as per our last post on Sourcing Innovation, as the value of acquisitions tend to come from three types of synergy:
And there are two ways these synergies can materialize. In the first case, we have the synergy of complementarity, which tends to manifest as follows:
- the customers will desire the complementary offerings of the two parties
- the solutions are complementary and fit together like pieces of the same puzzle
- the operational strengths are complementary and merging the two teams actually increases productivity in marketing, sales, and back office processing
And in the second case, we have the synergy of redundancy, which tends to manifest as follows:
- the customers all fit the same mold, and can theoretically be served by both companies
- the solutions are, at least on paper, interchangeable and one half can be retired and the larger customer base served with a smaller solution footprint
- the operations of the larger company can be conducted with a smaller team using digitization and overlap in operational requirements
If there is any redundancy in the two companies, either in platform, operations, or staff, then the only way the synergy can be realized is through the elimination of the redundancy. And if that redundancy is one that impacts your organization, then you should be planning on what to do if the redundancy is eliminated, because, in most cases, it eventually will be.
How You Will Survive the M&A
When a merger or acquisition takes place, one thing that is true is that whatever the combined company intends to do, it is very unlikely that it plans to leave your company high and dry (as losing customers totally negates the point of a merger when the intent is to grow). However, that doesn’t mean that the plan it has in store for your company will be the solution in your best interest.
For example, when there are two solutions that do essentially the same thing (like Sourcing, Spend Analytics, SRM, etc.), one typically has to go. Chances are they are not 100% interchangeable. For instance, one analytics solution will be better at ad-hoc report building while the other analytics solution will be better at out-of-the-box reporting. One solution will be better at do-it-yourself cleansing and classification and the other will be geared for provider service. And so on. Depending on the particular skill level of your organization, you might need a solution with canned reporting and provider data maintenance services. So what happens if this is the solution that is cut?
Similarly, there could be an overlap in account management or support personnel, especially if product lines get cut. What happens if the team you’ve been working with for five years is re-assigned or, worse yet, let go en-masse? Will the new team have the same understanding of your industry, your business, and your goals?
While nothing much should change in the short term (as the new organization sorts itself out), it’s almost inept to think nothing will change in the mid-term. So you better be prepared. How do you do that?
1. Ask yourself what the reason was for the merger or acquisition and where the synergies lie
If it was merely to increase customer base or market size, then the platform is secondary. And if there are no synergies in the common platform, and more importantly, there is a lot of redundancy, one can expect something to change. Probably sooner than later.
2. Understand your core needs
Basically, go back to square one and pretend you are looking for a new solution. Document your current process, key aspects of the technology you depend on, key services you require, and key support personnel that must be available. Then …
3. Understand what systems / modules / services are core
Go through your end-to-end platform, and determine which modules are core, and, in particular, which functions or capabilities are core. Then go through your end-to-end services and which support services are core, and what makes them core. Then, for each remaining module or service, which parts, while not core, are highly desirable and why.
4. For each core or highly desirable component, identify acceptable substitutions
For example, if spend analytics is core, as it’s the primary tool used to identify value generation opportunities by the Supply Management team, and the team primarily uses ad-hoc reporting, but only on an annual basis, and only creates one or two dozen new reports each year, then maybe it could get away with a canned reporting solution if the provider has a services team that can add custom reports on a regular schedule at a fair cost. And if SRM is core, but primarily to import data from third parties, then maybe all that is needed is a pass-through interface to the third parties in question.
5. Then identify where there is no acceptable substitution, and what the back-up plan will be
Going back to our last example, maybe the team just can’t live without ad-hoc reporting capability as it has no idea which reports are needed until ad-hoc cubes are constructed and investigated by the leading data scientists who use advanced outlier analysis and years of intuition to find the right paths to go down. In this case, the backup plan would be to obtain another solution.
6. Identify your out
Hopefully you won’t need it, but in case you do, figure out what that out is. Do you have an out if there is a change of control? Do you have a way out if your solution is retired? If services you no longer depend on are cut? Do you have an out at (auto) renewal time?
7. Test the market
Issue an RFI and find out what other solutions might meet your organizational needs, what the transition time and process would be, and what the cost would be. Chances are that since you last went to market, the situation has changed and the transition time or cost of alternate solutions is less, leaving you an out if you need it.
For instance, if there is a best-of-breed point-based solution that could be brought in, then the organization could stay with the current provider and have no fear that someday the current provider would not be able to meet most of its needs. But if there is no best-of-breed solution that makes the grade, or the value is only realized when it’s natively integrated with an end-to-end Source-to-Contract or Source-to-Pay suite, then the backup plan would be a new provider. But this is not a back-up plan that is quick to implement, which means the organization has to start looking now and identify a data migration plan asap and have everything figured out before it’s contract renewal time, when its preferred solution could go bye-bye.
Moreover, as pointed out above, when the merged organizations have two solutions for every problem, each (and every) customer basically has a 50% chance of losing their solution of choice at renewal time. If the organization cannot live with a disruption, then it has to weigh the risks of staying versus migrating. And sometimes taking the change head-on is the best solution.
However, until the customer walks through the analysis above, it won’t know. So do the analysis, and weigh the options. At the end of the day, organizational success is not an option, it is a necessity. Make sure you have the right solution, and provider, for the job.
How we may help you survive a M&A: Put simply, SynerTrade is stable. In the world of companies being acquired left and right, supporting procurement teams to directly cleanse their data, and manage the entire procurement function from sourcing, supplier relations, collaboration, and controlling is what SynerTrade does best, and has been doing since inception.
About the author
Michael Lamoureux - Lead Analyst and Futurist