preparing for a merger or takeover
TRANSCRIPT
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
Guy Allen October 23rd 2013
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
Part 1 – Introduction
The Real World Sourcing Series is a series of 6 sessions covering hot topics for procurement professionals.
The series is promoted and supported by BravoSolution, and developed by Peter Smith (Spend Matters) and Guy Allen (Real World Sourcing Limited).
Guy Allen started his procurement career with Ford Motor Company, moving through IBM, SmithKline Beecham and GSK , becoming CPO for Abbey National and VP Global Sourcing at Fujitsu before joining 4C as a Managing Partner. Guy has since left 4C and started his own consultancy, Real World Sourcing Limited.
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
Agenda 1. Everything Changes
2. The Importance of Procurement
3. Preparing Yourself
4. Preparing Your Team
5. A Few Case Studies
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
'The only constant in life is change'
Heraclitus 500BC
Everything Changes
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
Research shows Procurement's Importance The Importance of Procurement
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
Key Reasons for M & A activity Disposal – Getting Rid of non-core activities
Cost Synergy – taking the opportunity to consolidate and reduce expenditure in common areas
Market Share – Changing the scale of the operation either to dominate or better compete
Acquisition of Technology – Acquiring leading edge technology or accessing R&D pipelines
Protection – Of supply or marketplace
Customer Acquisition – Expanding reach in current or new markets
Access to a New Market – Either geographic or product offering
Competitive Activity – Reducing the competitiveness of the market place
Red
ucin
g Pro
curem
ent In
volvem
ent
The Importance of Procurement
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
‘Procurement consistently generates the bulk of the near term savings in merger-integration efforts’ Booz-Allen Hamilton
‘Synergies such as scale buys and purchase process consolidation often contribute between 25 percent and 50 percent of targeted M&A benefits’ Accenture
‘Procurement typically delivers more than 1/3 of the overall synergy cost savings with an especially deep impact in the first year of the post merger integration period’ AT Kearney
The Importance of Procurement
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
PREPARING YOURSELF
• Mergers represent a significant challenge
• Be honest with yourself as to what you want
• Focus your activities towards that objective…
…whilst preparing your team
Preparing Yourself
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition Making Spend Analysis Work
A Core Requirement for all Procurement Professionals:
Know Your Numbers!
Spend Matters UK/Europe
Be prepared to speak confidently about them
Preparing Yourself
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
One Tactic to Avoid!
Either stay and learn, or leave quickly
Preparing Yourself
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
Mergers represent a great opportunity for Procurement
Don’t be an Ostrich......
Be a Hero!
Preparing Yourself
...move your emotional loyalty to the new company and.......
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
STANCE
Assume you have the power to make things happen
If you think you’ve got it, you’ve got it
If you don’t think you’ve got it, even if you have got the power, you haven’t
Preparing Yourself
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
Every now and then, somewhere, some place, sometime, you are going to have to plant your
feet, stand firm, and make a point about who you are, what you do, and what needs to happen.
When that time comes, you simply have to do it
Pat Riley, Coach, LA Lakers
Preparing Yourself
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
Getting Your Team Ready
Your approach will depend on your organisation’s position in the deal
- Are you acquiring?
- Is it a ‘merger of equals’?
- Are you being acquired?
Preparing Your Team
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
Task 1
Consider the different company positions in Mergers & Takeovers (ie acquirer, acquired or merged)
As CPO what should be your top 3 priorities in each
situation? Discuss on your tables and be prepared to discuss
your priorities
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
ALIGN PROCUREMENT IN YOUR ORGANISATION
• If Procurement is already centralised, form a merger council
• If decentralised, form a Procurement Council of your peers from other departments or geographies
Preparing Your Team
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
1) Savings Targets
2) Day One Savings
3) People And Organisation
4) Processes
5) Governance
6) Systems Harmonisation & Development
7) Measurement
8) Communications
9) Novations
Merger Workstreams Preparing Your Team
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
DEVELOP AND PUBLISH PLANS • Clear plans by category to show what you were
planning to save in your original organisation
• Forecast what might be achieved in the combined organisation
• Engage your team by getting them to develop the plans
Preparing Your Team
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
MAKE A COMMITMENT • Commit to save ‘X’ in the first year
• Align savings numbers to those that the CFO has committed to the City and investors
• Be clear what you need to deliver the number
• Reporting lines
• Number and quality of resources
• Revised governance approach
• Investment in new systems
Preparing Your Team
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
COMMUNICATION
• Paint a Vision for your team
• Share as much as you can – they will still assume you are hiding something
• Tell the organisation at large what you plan to do
• Place Procurement in the governance role
Preparing Your Team
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
INTEGRATION FUNDING • All mergers have an integration fund
• Submit your budget for the activities that you will be expected to undertake • Redundancies
• Retraining
• New Systems
• Novation workload
• Travel Costs
• Advise departments (especially IT) that they will need to budget for contract novations
Preparing Your Team
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
CONTRACTS • Have a summary of all major contracts
• Issue a ‘no new contracts’ instruction
• Identify those that are ending soon or could be terminated early
• Identify those with ‘toxic’ clauses
• Centralise contracts
• Estimate resource requirements for novations exercise
Preparing Your Team
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
DON’T LET THE OPPORTUNITY PASS
• You can reposition Procurement
• Personal advancement
• You can re-invent yourself
• You can get the attention of the FD like you never could before
• The organisation will be more open to change
YOU MIGHT ONLY HAVE 3 MONTHS
DONT MISS IT
Preparing Your Team
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
1) The two companies operated across many geographies
2) Assessment of the capability undertaken by country, best candidate placed in Head of Procurement role in each country
3) Opportunity taken to substantially improve Procurement in both companies
4) An investment fund of £20m was secured to improve
- Capability of teams
- Revised processes
- Centralised data
- New and improved systems
Case Study 1 – Enhanced Performance
OUTCOME – Company was recognised as a leader in Procurement in the mid
to late 1990’s
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
1) The merger was partially predicated on reduced costs and most departments had
targets to reduce headcount by 10-20%.
2) However Procurement committed to deliver $1bn of savings (on $8bn of spend) and
therefore its headcount cuts were deferred for 3 years.
3) Staff were selected based on capability and categories were managed globally. E.g. IT
Software was managed from the UK, Desktop from the US
4) A formal programme was put in place to cover many aspects of operation aimed at
improving performance and delivery the target
Case Study 2 – Leveraged Spend
OUTCOME – Team harmonised BEFORE the merger. $1bn savings achieved
in 2 years
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
1)The acquiring company did not operate centralised procurement
2)UK operation largely left as a standalone business
3)Primary aim of the takeover was cost reduction through headcount reduction
4)Procurement headcount reductions were limited in the first year
5)High level of Governance introduced – all spend over £25k had to be approved by a committee, chaired by Procurement
Case Study 3 – Governance
OUTCOME – Significant savings through demand management
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
1) The acquiring company were based in Scotland, the acquired in London
2) An open recruitment process was run for all functional head positions. All went to the acquiring company personnel based in Scotland
3) Over the next 18 months, the combined organisation lost 29 of its top Procurement people based in London
Case Study 4 – Centralisation
OUTCOME – Savings delivery was delayed by up to 18 months while new staff
were recruited and brought up to speed.
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
Final Thoughts
1. Know your numbers, know your suppliers and make sure your team do the same
2. Communicate to your team and the organisation
3. Publish a savings target for your new company, provide a vision, a statement of the art of the possible
4. Be a leader not a follower, fortune favours the brave
5. Exploit the spirit of change, it will not last long
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
Real World Sourcing Scholarship
• £2500 towards any procurement based training
• Log on to the BravoSolution Education Network with the details you’ll receive tomorrow
• Complete the certification programme
• Check your ranking!
• The winner will be announced at the Sourcing Experts Dinner in December
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Preparing for a Merger or Acquisition
THANK YOU!
Please feel free to contact me on