How Procurement Can Create Value In Mergers And Acquisitions

Frank Omare

According to analysts, the strong mergers & acquisitions (M&A) market is expected to continue. The forecast is that the deal environment will improve, or at least remain stable, over the next 12 months. How does the chief procurement officer (CPO) get a seat at the table with the CEO, CFO, and business-unit leaders when pledging synergy savings to the stock market?

Making important contributions pre-merger

Traditionally, procurement has not been involved in the due diligence activities and scoping of the potential cost savings from business mergers. Typically, an arbitrary savings target of five percent is proposed by consultants and signed off by finance. Given that procurement spend can be up to 65% of sales revenues, depending on the sector, there are significant opportunities for the CPO to become involved in the business’ strategic planning. CPOs should invest time and effort to earn a seat at the table – and to be viewed as a trusted advisor to the C-suite.

At the pre-merger stage, digitalization can automate and streamline the process of estimating procurement savings, which is often thought to be too time-consuming. The use of digital solutions allows procurement to extract data from both internal and external sources, cleanse them, and categorize them in enough detail to provide a “true north” baseline position of the combined external spend. Procurement can use the data to identify areas of opportunity and to inform the board of savings from synergies. This can be done within weeks rather than months.

Adding more value post-merger

After the deal closes, procurement will gain more access to data at the spend-category level across the different plants, countries, business units, and so on. Next-generation data management captures real-time value from different data sources. Procurement can identify pricing or specification discrepancies between different plants or divisions, spend or supplier fragmentation, and disconnects between raw-material prices and commodity-market indices. This will validate the savings estimate pre-merger or identify gaps where additional savings are required. Organizations are more likely to achieve a thoughtful stretch target based on savings identified using analytics and spend intelligence.

Making a business case for digital solutions

If digital solutions are not available, the M&A activity can present opportunities to develop a business case to invest in digital transformation post-merger that will help realize significant savings from cost reduction, compliance, process efficiency, and working capital improvement. The procurement team can perform data analysis and apply taxonomy to profile the spend. They can work with subject matter experts during discovery sessions to validate spend-classification mapping and addressable spend. Then they can apply benchmarks to estimate the savings and determine the ROI generated by the outlay required on software, implementation, training, and so on.

Getting a seat at the table with the C-suite during M&A activities helps to transform procurement into a strategic role that goes beyond finding and acting on low-hanging fruit opportunities.

If CPOs are interested in having a more strategic role within the business, they must seek opportunities to contribute to the wider commercial activities of the organization. M&A is a great opportunity.

For more information on how CPOs can play a more strategic role, please read “Can Procurement Align With Sustainability Goals?

Frank Omare

About Frank Omare

Frank Omare brings over 20 years of combined senior line management and "Big 4" consulting experience in procurement and supply chain. He is a Fellow of the Chartered Institute of Purchasing & Supply (FCIPS). Frank has a proven track record of developing transformational change programs and engaging the hearts and minds of people at all levels in the organization. With SAP Ariba, which offers the world’s largest cloud-based network for business commerce, Frank leverages his experience to collaborate with customers to help them to understand the benefits of leading-edge solutions that address complex business issues. Going beyond the financial benefits, Frank's work helps customers understand the value of digital transformation and to prioritize sustainability as part of their organization’s values.