A few months ago, we wrote that “2012 will be a return to full speed ahead for M&A.” Our Strategies to Transform Your Supply Chains in 2012 article noted that M&A growth is expected to be robust.

But at this point, deal activity is slow out of the gate. The Financial Times reports that “deal making has had its slowest start to a year for nearly a decade, as companies’ appetite for M&A remains suppressed by the uncertain outlook for the global economy.”  There is, however, a big caveat here – as the article later points out that company leaders are realizing that M&A needs to drive growth. 

So as cash flow becomes available, organic growth slows and boards demand growth, we still expect a peak in M&A activity this year. Will it surpass 2011? Possibly not, but the focus will still be on profitable growth.

And if you want to succeed in M&A for value creation in the upcoming year, there are two essential requirements: speed and due diligence.

1) Speed – As supply chain leaders, we want to capture maximum value from an acquisition and set the pace for results. Stakeholders, the marketplace, and competition all watch this speed of acquisition and will value the acquisition based on the speed at which results are achieved.

2) Due diligence – When engaging in M&A activity, there is no give-and-take between creating it quickly and doing it right. To do right simply means to pursue the three M&A due diligence processes: commercial due diligence, culture due diligence, and supply chain due diligence. All three provide opportunities for revenue growth, cost reduction and risk mitigation.

There are also four very important strategies for creating value in M&A activity: business strategy, acquisition strategy, supply chain strategy and operational strategy. Our new white paper, Laying the Foundation for Successful M&A - A Supply Chain View covers the four strategies in more detail.

It appears that M&A this year will be more about driving growth and creating value than in previous years, and taking a supply chain view is the way to go.

What do you predict for M&A in the coming months? How do you see the supply chain fitting into the picture?

GoGoGo!
Jim

Resources

Mergers & Acquisitions Can Be Risky Business Without Supply Chain Due Diligence

Acquisition success thrives on supply chain integration

Mergers and Acquisitions in the Service Supply Chain Industry

 

It happens to me almost every week. I get a call from a firm (private equity or a company that makes and ships products) explaining that they did a deal a year ago … and now it is not working out. Could we help?

Typically, these are “add-on” deals and someone has now realized that the supply chain is an important part of the deal. Their integrated supply chain is not working, and they want to know why this is so and how it can be fixed.

Of course, I am happy to help, but DARN, it would have been so much better for all involved to avoid this “one year later” call and get it done right the first time!!

It is my very strong belief that the supply chain is so important that it should be a key consideration, beginning with the due diligence and all the way through acquisition and integration of the supply chains. Unfortunately, what happens more often than not is that the M&A process is so time compressed and the initial aspects of integration are so hectic that the whole topic of supply chain is not even addressed.

Then the light blub finally goes on – a year after the deal was completed someone says, “This supply chain is broken, we need help.”

What normally occurs during this hectic year is that many decisions are made that may or may not be on the right supply chain path. Questions such as these are likely to arise:

• Do we use Company A or Company B’s order entry system?
• Do we use Company A or Company B’s S&OP process?
• Do we use Company A or Company B’s distribution operations?
• Do we use Company A or Company B’s sales team?
• Do we use Company A or Company B’s IT?

They are missing the point. The interesting thing here is that when Company A buys Company B, then the correct answer is often to not use what Company A has done or what Company B has done.  The combined Company AB is a different organization from Company A or Company B, and it is quite possible that the new supply chain has different requirements from what either Company A or Company B had previously.

So, three big points to come away with here:

1. It is very important for the supply chain to be considered during due diligence and in formulating the strategy for the acquisition.
2. It is very important that an objective view of the supply chains of the two separate firms be understood, but even more important that the requirements of the combined supply chain be fully understood and addressed.
3. It is very important that decisions about supply chain integration be reached quickly and communicated widely soon after the acquisition is announced in order to accelerate the integrated supply chain.

For more reading on this topic, check out Tompkins’ position paper on Integrating Supply Chains From Business Combinations.

Go!Go!Go!
 

More Resources

Merger and Acquisition Strategy

You Shouldn’t Spell ‘Due Diligence’ Without ‘Supply Chain’

Mergers and Acquisitions in the Service Supply Chain Industry

Last year was a good one for mergers and acquisitions (M&A). In fact, the value of global M&A rose almost 23% in 2010, with emerging markets leading the way and the energy and power sector seeing the most activity.

M&A is a burning issue no matter what your industry sector, and I hear about these challenges and questions every day in talks with business and supply chain leaders.

How much due diligence is enough? What if this new deal weakens our existing operations? How do we go about integrating supply chains? How can we show stakeholders the real value of the combined businesses? These questions and more are addressed in the Top 11 Priorities in 2011 for M&A.

Most executives understand that a good due diligence process is crucial to M&A, but I don’t believe that the impact of supply chain analysis and integration is well understood. Due diligence is not just about “financial engineering” – it is also about uncovering operational values early in the process.

Supply chain due diligence, done right, can reveal:

• Opportunities for supply chain improvements, simplification and cost reductions (sourcing, inventory, transportation, operations);
• Avenues for increased supply chain visibility, agility, velocity and responsiveness;
• Ways to meet challenges from supply chain risks and constraints to future growth; and
• Opportunities for network rationalization, organizational refinement, supply chain IT and Asian sourcing
  

I predict that we will see more companies looking to the supply chain during M&A due diligence and organizational integration in 2011 as a way to secure profitable growth.

Go!Go!Go!

Jim

P.S. If you are interested in Top 11 Priorities for business sectors such as pharmaceutical and consumer products, you can see more here.


More resources

M&A Strategy

Whitepaper, Integrating Supply Chains from Business Combinations

http://www.tompkinsinc.com/operations/mergers-and-acquisitions.asp

Things are really heating up out there. And I don’t just mean the sweltering summer temperatures we’ve been experiencing lately in my area of the world.

I’m also thinking about how across almost every industry today, the business climate is hot with opportunity for merger and acquisition (M&A) activity. Executives are looking for business combinations to take advantage of undervalued assets. 

This anticipated M&A activity is not business as usual, however. More attention is being paid to the value that can be gained from combining organizations and assets. Supply chain executives and managers should be aware that when M&A occurs, a big part of the challenges ahead will come from integration of processes and supply chain technology, as well as and finding value in the supply chain.

With the level of M&A activity expected to rise, supply chain integration is a key value-driver. We often refer to “supply chain integration,” but what does that really mean? I think we use the phrase ‘supply chain integration’ so much that we might have forgotten what it actually means. When we over-use a phrase like this, it becomes jargon, and once in a while in this blog, I examine common business jargon we use all the time and dig deeper into what it really means.

End-to-end, a supply chain is made up of six processes – Plan, Buy, Make, Move, Store and Sell. Integrating supply chains for the purpose of creating a merger or acquisition involves putting these parts together, renewing the way we define “supply chain integration.” 

Integration calls for planning, such as using benchmarking assessments, organization or re-organization of the processes, and change management as required. Not only do supply chains have to work end-to-end, but also create value and integrate smoothly with other businesses as they are combined together.

In his white paper, Integrating Supply Chains from Business Combinations, Gene Tyndall writes that, “Supply chains are increasingly finding themselves in competition with each other, rather than companies competing with each other. This trend in itself should motivate companies to get the supply chain integration right, make it sustainable, and create value.” 

As M&A becomes even hotter (as we expect it to do) and executives explore more business combinations, supply chain leaders will need to be ready to respond to the spotlight that’s sure to fall on the value and cost reduction that spring from supply chain. M&A means the supply chain can create new value for organizations, and planning for supply chain integration is a major part of creating cost savings.

Stay cool out there as we head into late summer … but keep hot on the trail for profitable growth.

Download the White Paper - Integrating Supply Chains from Business Combinations: Principles and Best Practices of Mergers and Acquisitions

Step 1: Get involved with acquisition opportunity

Step 2: Perform supply chain due diligence (Click here to listen to a podcast on supply chain due diligence and M&A.)

Step 3: Understand business strategy

Step 4: Develop supply chain strategy and supply chain integration plan (To learn more about supply chain integration, here is the link to a recent white paper by Gene Tyndall, Tompkins Associates’ EVP, Global Supply Chain Services.)  

Step 5: Complete the acquisition

Step 6: Pursue supply chain strategy and supply chain integration plan

Step 7: Establish supply chain profitable growth plan (Listen to this podcast for more details on “profitable growth.”)

Step 8: Pursue profitable supply chain growth plan

Step 9: Get involved with next acquisition/divestment opportunity

Step 10: Return to Step 2

Download the White Paper: Integrating Supply Chains from Business Combinations - Principles and Best Practices of Mergers and Acquisitions.
http://www.tompkinsinc.com/publications/monograph/supply-chain-integration/

Global M&A Podcast - Transforming Supply Chains for Profitable Growth
http://www.tompkinsinc.com/podcast/transcripts/6-2-10_podcast43-profitable-growth.asp

M&A Podcast - Supply Chain Due Diligence and Mergers and Acquisitions
http://www.tompkinsinc.com/podcast/transcripts/4-6-10_podcast39-merger-acquisition-3.asp

Warning: Mergers and Acquisitions May Be Hazardous to Your Company's Health
http://gogogosupplychain.tompkinsinc.com/post/mergers-and-acquisitions-hazardous.aspx

Are You an M&A Sinner? Repent and Heed the Lessons Learned!
http://gogogosupplychain.tompkinsinc.com/post/mergers-and-acquisitions-mistakes.aspx

 

Drama is particularly evident in China, where inbound M&A dropped from 2008 to 2009, but that trend is expected to change, according to Dr. Kim Woodard.

I recently interviewed Dr. Woodard for a two-part series in the Global Supply Chain Podcast. He is like a treasure-trove of knowledge on global M&A.

His experience in China over the past 20 years has included multiple investment projects and M&A advisory practice work on the ground in the country. When companies are looking for the most experienced guide to lead them into the China region, Dr. Woodward is the one who gets the call. He is also Vice President at Technomic Asia, a Tompkins International company helping to expand our global supply chain consulting expertise, headquartered in Shanghai.

Dr. Woodard pointed out in our podcast discussion that he anticipates M&A activity in China to recover late this year or in 2011. Whether it will be a gradual return or a sudden spike of activity is unsure, as he correctly notes that China never fails to surprise.

However, not only is China’s emerging economy taking the spotlight for multinational companies to invest in, other countries are also sharing the stage. As Dr. Woodard puts it, “It is no longer about ‘India vs. China’ but now about ‘India and China and Brazil and maybe Russia.’ ”

These countries, which are known to investors as the BRIC (Brazil, Russia, India, and China), are attractive for M&A activity because the emerging economies offer great future growth potential and savings from global trade management. For multinational companies looking to invest as the Great Recession ends and the Great Recovery begins, all the world is truly a stage!

In the podcast series, Dr. Woodard and I discuss what the BRIC countries have to offer multinational organizations as they seek investment through M&A, as well as past and emerging trends in this area. We also cover the challenges that integrating all of these  global supply chains and operations practices will present to company leaders as they prepare to combine their businesses with others over several different geographies.

You can listen to this two-part podcast or read the text transcripts:

Global M&A: Emerging from the Great Recession - http://www.tompkinsinc.com/podcast/transcripts/5-4-10_podcast41-global-merger-acquisition.asp

Global M&A: Challenges of Operations Integration - http://www.tompkinsinc.com/podcast/transcripts/5-18-10_podcast42-operations-integration.asp

GoGoGo!

Jim

More Resources:

Download the White Paper: Integrating Supply Chains from Business Combinations - Principles and Best Practices of Mergers and Acquisitions.

http://www.tompkinsinc.com/publications/monograph/supply-chain-integration/

 

Download the White Paper: Global Trade Management Technologies

http://www.tompkinsinc.com/news/PR_2010/pr_041210.asp

 

More about Technomic Asia, a Tompkins International company providing insight and strategy for growth in China and Asia:

http://www.technomicasia.com/services/index.htm

Photo Credit: David Barrie

Here’s a simple phrase that may result in some real misunderstanding: "Emerging markets."

Calling a country "an emerging market" is no longer an accurate description. So let’s dust this concept off, consider what has changed, and see how we should be using this phrase today.

Once in a while in this blog, I take business jargon words and phrases and consider what they used to mean and what they mean now.

Currently, the concept of emerging markets is an especially interesting one to size up. This is because merger and acquisition strategy is on the verge of becoming hot, hot, hot and is impacting the status of emerging markets themselves. This could affect your company in a big way, and you need to be ready.

In the traditional sense, what we used to call emerging markets – such as Brazil, Russia, India and China – are so economically massive and important to the world now, and they’re growing so quickly, that the term really doesn’t apply any more. But, maybe we need to dig a little deeper.

Defining a market as emerging implies that the opportunity for intense, rapid growth exists, but has not yet begun. Some force – whether an innovation or an acquisition – has to knock over the first domino to turn potential energy into rapid growth.

Once this happens, the market’s status changes from emerging to high growth and eventually to mature status. At some future point in time, this cycle can turn to a redefinition state, where changes to the market or to the industry result in a whole new set of dynamics.

You see, I now believe that within a given country’s market, it is important to consider what growth exists by industry, not overall. For instance, where in one market a given industry is still emerging, for another industry, that same market could be high growth.

How does this work? Consider that in a specific country, the food and beverage industry can be mature, but in this same country, the pharmaceutical supply chain is being established and the industry is just emerging. Each industry in each country or region needs to be defined based on its unique characteristics.

Emerging markets may be crowded but also fragmented, and thus huge opportunities exist for growth. And often this growth can be initiated via an acquisition.

The key points that you should keep in mind when considering entry into these markets: Have a rigorous definition for your industry and base your acquisition strategy on your company’s opportunity for growth.

Do you agree that the term emerging markets needs to be viewed on an industry by industry basis and not be applied broadly to a country? What is your company doing in the way of defining emerging markets and laying a claim to capture this high growth potential?

More Resources:

M&A Podcast Series on the Global Supply Chain Podcast: Learn more about the series and subscribe to receive updates when a new podcast is available.

 

Executive Briefing: Sales, Inventory and Operations Planning: Crossing Organizational Boundaries

 

Photo credit: Dave Bleasdale

One might expect mergers and acquisitions to be slow, since many companies are still in recovery mode. But the opposite is true -- we are seeing a lot of mergers and acquisitions right now. Corporate M&A is presenting the business world with the ability to zoom past the competition, as well as increase profitability.

To help prepare for this renewed importance of merger and acquisition strategy, I'm doing a podcast series on the topic that already has two installments, with two more on the way. It's part of the ongoing Global Supply Chain Podcast, which I host, and it has been going strong for over a year now.

The first podcast in this new M&A series is a general look at the state of M&A, overall and for specific industries. For instance, one industry's M&A activity is up 154 percent! I'll let you guess which until you hear the podcast or read the transcript. In this podcast, I present four keys to a successful M&A.

Listen here at http://www.tompkinsinc.com/podcast/transcripts/3-2-10_podcast37-merger-acquisition-1.asp

The second podcast is a really interesting interview I did with Technomic Asia's Steve Ganster, and he had a lot of great information to share. Steve has worked with hundreds of companies internationally on M&A projects, and his insight is valuable. He shares some of the common pitfalls of mergers and acquisitions, as well as ways to stay proactive and see the process through to success.

You can listen to it here: http://www.tompkinsinc.com/podcast/transcripts/3-16-10_podcast38-merger-acquisition-2.asp

You may be saying, "This really doesn’t affect me, Jim, so why should I care?" Well, at some point, it is a good bet that your company will be involved in M&A – either acquiring and integrating another organization or becoming the one that is integrating into another organization. And if you are with an M&A firm, you can always learn more about what it takes to successfully merge entities.

I hope you will take a few minutes to listen and subscribe so you get the next two installments in this series.

GoGoGo!

Jim

More Resources: 

Caught Between the Tiger and the Dragon: A Business Novel by CEO Jim Tompkins is a modern-day fable that cleverly brings to life the ups and downs of business today. Find out more.

More Blog Posts on Mergers and Acquisitions

Are You an M&A Sinner? Repent and Heed the Lessons Learned!

 

Private equity firms make supply chains the star when adding value to their porfolio companies.

 

A caution on mergers and acquisitions and how they affect companies and their supply chains.

As more organizations recover from the recession and enter The Great Comeback phase, one of the potential disruptive strategies they may deploy is Mergers & Acquisitions. The combination of organizations seeking to bounce back and the loosening of the credit markets make M&A feasible again after a 12-month hiatus.

However, we need not forget what we have learned over the last five years of M&A. The prime lesson being that M&A can be a major success or a major failure – it definitely depends on how you approach the process.

In a recent article by Russ Banham in Chief Executive magazine, he presents his "Six Deadly M&A Sins." I hear you, Russ, and can speak in detail about more than a few of these sins.

Through the successful acquisitions that Tompkins Associates has supported for both strategic organizations and private equity organizations, we have witnessed many of these sins up close and personal. Steve Ganster and Kent Kedl with our Technomic Asia division can talk for days on woes stemming from mergers and acquisitions in Asia and China business.

But let me focus here on two particular sins that can kill the value of a supply chain in the M&A process.

Deadly Sin #3: Less-Than-Diligent Due Diligence

Due diligence in M&A is so very basic, but honestly, still not done well. Consider the following essential due diligence questions for 1) Sourcing Due Diligence 2) Supply Chain Network Due Diligence, and 3) Supply Chain Systems Due Diligence. These questions below must be fully answered to avoid committing a deadly sin.

1. Sourcing Due Diligence

Level of sourcing understanding of trade agreements, duty and customs and impact on total sourcing cost?

Application of sourcing clusters?

Any challenges on classification, valuation, marking, anti-dumping duties or intellectual property?

Customs compliance risks?

Trade action threats?

Any customs and border protection exposure or disclosures?

2. Supply Chain Network Due Diligence

Proper number and location of facilities?

Correct mode of transportation and appropriate carriers?

Effectiveness of transportation management?

Proper inventory policies and reasonableness of inventory turns?

Proper decisions on insource vs. outsource?

Competitive discounts on transportation?

Appropriate DC level of automation?

Competitiveness of factory and DC efficiency and productivity?

Reasonableness of freight spend?

Validity of inventory valuation?

3. Supply Chain Systems Due Diligence

Is the right IT infrastructure in place?

Are the right supply chain applications in place?

Are the supply chain applications being used to the fullest?

Are the supply chain applications properly integrated?

Are the supply chain applications being used correctly to support day-to-day operations?

Where are the inefficiencies resulting from poor utilization of supply chain applications?

Deadly Sin #4: Post-Merger (Dis) Integration

Don’t forget the "Top 7 Keys to Supply Chain Integration" when doing an acquisition:

1. Supply chain strategy for the integrated business

Due diligence before the acquisition

Understand and create a mitigation plan for any out-of-line costs

2. Operations strategy

Keep the plan consistent with larger strategy

Identify and integrate untapped supply chain potential

3. Organization of the integrated supply chain processes

Thoroughly articulate the desired result before beginning

Identify overlap, gaps, and contingencies, along with…

4. Functions or levels to outsource

Understand and differentiate core functions

Be honest about where others can do it better

5. Differentiation through supply chain performance

Fulfillment of many M&A opportunities resides in the supply chain

Not just economies of scale, but innovation

6. Supply chain technologies utilization

Understand the opportunity and plan for the implementation

Not a silver bullet

7. Employing change management

First 100 days and long-range plan

Reassess assumptions, miscalculations and new opportunities

Overall, if you remember that it’s about adding to the value of the supply chain rather than taking away, the M&A process will go much more smoothly.

More resources on M&A:

M&A Strategy –
http://www.tompkinsinc.com/operations/mergers-and-acquisitions.asp

 

China M&A: An Interview with Dr. Kim Woodard on mergers and acquisitions in China –
http://www.technomicasia.com/blog/2009/10/28/china-ma-an-interview-with-dr-kim-woodard-part-1

Photo credit: Lel4nd

It's no secret that the recession has frozen private equity firms' urges to launch the mega-deals that they were doing less than a year ago. Even with improvements in the stock market and economic indicators, these firms are still paying less attention to acquiring companies and more attention to improving the companies that they took over in the boom years.

A survey earlier this year by the Association for Corporate Growth, a buyout industry group for consultants, found that 89% of private-equity executives said they were planning on spending a lot more time than before focusing on their portfolio companies. So supply chains have moved from a supporting role to a starring role in the minds of private equity executives.

Is this a bad thing? Definitely not! This is really a good thing for the companies under the firms' umbrellas, and ultimately for the private equity firms. They are beginning to look closely at the supply chains of the companies they hold – asking critical questions such as, how can we streamline operations, how can we pool supplier orders and cut costs, and how can we add value by outsourcing non-core activities?

Some of the main areas firms should consider when answering supply chain questions include:

Inventory optimization

Distribution center optimization

Logistics network optimization

Customer service and value analysis

Transportation optimization

Strategic operations planning

Strategic sourcing and procurement

Equipment selection, integration, and installation

System selection and implementation

Global sourcing and security

Logistics service partner selection

New market penetration strategies

Validation and regulatory compliance

Green initiatives

Before the economic downturn, the majority of private equity firms discouraged anything more than tactical cost reductions among their portfolio companies. Now, they are throwing away the scissors and picking up the stethoscope and scalpel to diagnose, and then operate on supply chains within their organizations. From this perspective, the Great Recession has contributed significantly to the understanding and impact of the supply chain.

Private equity firms are realizing that supply chain excellence equals added value and a better return on investment. They should keep this thought in mind during the good times as well as the bad times, as should we all.

GO! GO! GO!

I asked Brian Hudock, a partner at Tompkins Associates, for his insight into what's really going on in today's healthcare supply chains. Brian is an expert on improving supply chain performance in healthcare, pharmaceuticals and medical products and has spent a fair amount of time in waiting rooms. Here are his thoughts.

-Jim

------ 

What do you think about when you're sitting, waiting, in the very appropriately named physician's "waiting room"? For me recently, it was first and foremost the health of my wife (who is fine) and secondly, it was the complexity of the healthcare market. Signs of complexity in the healthcare industry were swirling all around me.

My wife was having an outpatient procedure, and when we walked into the facility, I noticed multiple (dozens) of specialty offices -- all focused on the spinal issues, but each on specific specialties. As we filled out the paperwork along with the insurance forms and the the waivers, the amount of information collected and generated from a single patient was staggering (and this for a single visit). As my wife went into the prep room, I noted how the complexity of the bed, the supplies, the sanitation options, the additional questions asked (yes, more paperwork), all reinforced how healthcare has become so much more specialized and more extensive than the tongue depressors and cotton balls I remember as a child when I visited the all - purpose family physician. Although I think we just called him "the doctor" back them.

With this much specialization, it makes perfect sense that the pharmaceutical and medical products industries are becoming less specialized and more diverse. In order to service patients effectively, a broad range of solutions (including those that are customized to a single patient) must be part of a broad portfolio of solutions. To ensure that patients are well served and to keep pace with a rapidly evolving healthcare industry, the ability to manage, effectively distribute, and collaborate with industry partners is becoming increasingly critical.

The big reality of healthcare today is that the merger of non-traditional partners and industries -- including Pharmaceuticals, Generics, Vaccines, Biotechnology, Genetics, Medical Device, Medical Products, and OTC products using the same supply chain across the globe -- will challenge even the best logisticians and planners. If these acquisitions and mergers are not successfully integrated, the cost reductions being sought to support governmental healthcare goals will never be met.

These goals include up to a $1 trillion savings over the next 10 years -- not including the increased cost and challenges of new drug development and approvals, increased patent limitations globally, and an explosive healthcare supply chain security and counterfeiting problem. I knew it before, but realize now more than ever, that integrated systems, partnerships and control are and will continue to be critical in all sectors of healthcare.

My belief is the next decade will be fascinating as we truly create a seamless Healthcare Supply Chain. Now if we can do just something about these uncomfortable waiting room chairs and the long wait times!

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