- Service: Mergers & Acquisitions
Continuing growth challenges and increasingly competitive industry trends are forcing manufacturers and distributors to do more with less. Many are looking to mergers and acquisitions as a strategic opportunity and a solution to the common themes that exist across many of the industry sub-sectors, which include:
- Supplier Consolidation: Size and scale of original equipment manufacturers has forced supplier consolidation in order to keep pace and provide appropriate support.
Merger Integration: To realize identified synergies, private equity firms and corporate buyers are no longer able to rely on financial engineering to achieve the targeted results. Financial and strategic buyers are required to perform more thorough post-merger integration (including re-examining prior acquisitions) in order to achieve the necessary operational improvements.
- Margin Erosion / Cost Cutting: The recession has led to repeated waves of cost cutting and other reductions in areas with less available spend or that have traditionally been “off the table.” Companies are unable to pass on cost increases to customers, impacting profitability and leaving many to ask how to maintain their profit margins.
- On-shoring / Insourcing: Many manufacturers are re-examining their offshored or outsourced business models to determine whether they still provide value when considering total procurement costs and service levels.
- Specialized Requirements: Increasingly, sourcing and manufacturing processes are subject to specific requirements that support enterprise guidelines or directives for sustainability or corporate responsibility. Additionally, customers increasingly ask their distributors to do more and more (direct ship, kitting, light assembly, etc.). As with channel expansion, this creates operational challenges that can erode productivity and profitability.
Often, many organizations are facing these issues simultaneously, which makes growth and remaining competitive challenging.
Manufacturers and distributors often engage in M&A transactions to sustain or improve financial performance by:
- Reducing the cost structure of the combined entity by lowering operating expenses
- Increasing revenue for the combined entity by cross-selling products/services
- Mitigating risks of the combined entity by leveraging governance, risk, and compliance practices
- Potential target companies may also offer an innovative product or technology, lower labor costs, larger or new geographic customer base, or a broader distribution network.
Have you defined your merger and acquisition strategy?
Complexities lurk beneath the surface
Manufacturers and distributors understand the benefits a successful merger or acquisition can have. However, many still fail to reap the benefits of previous M&A activity. In addition, many manufacturers and distributors are acquiring businesses and capabilities that are new and unfamiliar, and have fundamentally different business processes.
Integrating new capabilities poses significant challenges, leaving manufacturers and distributors to struggle with how to capture the synergies that drove the deal in the first place.
Have you defined your synergy targets and integration strategy?
West Monroe helps manufacturers and distributors that have undergone M&A activity in the past realize synergy capture through integration, operational improvement, technology platform rationalization and overall business transformation. We consider not only your current acquisition, but prior acquisitions as well, to help our clients:
Develop an M&A Integration Strategy
- Align organizational strategy and target selection criteria
- Outline the investment thesis or transaction value proposition
- Develop a practical, efficient integration framework to support a seamless transition to a combined entity and maximize the benefits of M&A
- Define the metrics to track progress toward synergy targets
Capture Synergies from Prior Transactions
- Capture pricing synergy through customer and vendor contract negotiations
- Identify operational efficiency and business process optimization to increase productivity
- Consolidate/integrate applications and data
- Standardize IT infrastructure
- Implement reporting structure and define organizational roles and responsibilities
We pride ourselves on delivering on your business objectives - producing measurable outcomes that impact your bottom line. Here are just a few examples of the value we have provided to our manufacturing and distribution clients:
- Helped a food manufacturer improve production efficiency from 50 percent to 75 percent, achieve cost savings of $13 million and reduce order processing delays by 90 percent after a series of acquisitions
- Uncovered issues with a consumer products manufacturer’s ERP system implementation during an IT due diligence, saving the acquiring manufacturer more than $500,000
- Completed full carve-out of a healthcare manufacturer’s IT and operations, including program management, quality and regulatory, IT applications and infrastructure, workplace services, human resources and finance – on budget in just six months while passing all external audit and reporting requirements
- Consolidated information technology functions for two companies that merged to reduce IT costs by 20% and improve critical systems reliability and scalability for a transportation and scheduling service provider
That’s business in the right direction.