Is It Possible to Achieve Immediate Synergy After Mergers and Acquisitions?

Posted by Vijay Natarajan on Feb 15, 2019 4:58:11 PM

Find me on:

Mergers-acquisitions-banner

Mergers and acquisitions activity have been on the rise for several years, and according to Deloitte’s The state of the deal | M&A trends 2019 report, they show no sign of letting up. In fact, these deals are projected to continue to grow in size. Whatever the reason for each M&A – whether to stay competitive by acquiring new technology or broaden their market reach – what they all have in common is the drive toward synergy: the belief that the new combined whole will be greater than the sum of their parts.

Then why do about 50-85% of all M&As fail?

Where Businesses Go Wrong

The Deloitte report cites “lack of clarity and execution of the integration process” as one of the major challenges of M&As. To underscore that, when asked why deals don’t work out, an increasing number of respondents point to gaps in their integration execution. This is not surprising, as many don’t realize the full extent of how difficult and expensive it is to assimilate disparate systems, strategies, and processes. While there are many of these to contend with across a new enterprise, here we’ll focus on the specific challenges as they relate to supply chains.

Even the best due diligence ahead of time yields limited results and companies can only speculate about what the process will entail. A peek under the hood never compares to the actual effort involved. Thoroughly assessing legacy supply chains requires common metrics and standardized, consistent data from both entities. Many companies tend to believe that the only way to acquire this is by consolidating their collective systems, such as order management and financial systems. As a result, they dig themselves into long, drawn out and expensive efforts, which only delay the anticipated synergies.

Though no one wants to talk about it, companies will often assure their investors of a successful integration, when little work is done to substantiate results. The actual, looming consolidation endeavor can take years and serious capital. It requires extensive IT projects toward constructing an enterprise architecture in addition to combining systems.

Mergers-acquisitions-bodyAnother alternative is to “Adopt and Go:” Cherry pick the most fitting systems or solutions from each of the two companies. But unbundling and rebuilding frameworks also has its flaws and can cause significant delays. There are legitimate structural impediments to contend with, as systems tend to be interconnected. Businesses can’t seamlessly choose their favorites and expect the patchworked outcome to interact well.

A Better Way Forward

The anticipated benefits of M&As, like increased revenues and shareholder values, can be attained a lot sooner than many companies realize. It doesn’t have to take a major overhaul – the key here is to achieve interconnectivity. By investing in a unifying platform, businesses can get disparate systems to speak to one another and obtain the intended synergy within months of joining forces.

Bridging platforms that center around orders also assist in standardizing disparate processes by simply consuming raw orders from each entity and applying operational rules. Since orders are at the heart of all supply chain organizations, automating the order management function will effectively streamline the new entity’s joint operations and provide the quickest bang for the buck. The newly merged entities can also effectively leverage each other’s supply locations by sharing orders and accounts to boost revenues and provide a smoother customer experience.

Moreover, a unifying platform acts as a neutral repository for the combined information, so the merging entities can document the differences in how they interpret various metrics, such as cost allocation. Interconnectivity also prevents costly mistakes from transactional discrepancies, like duplicate product codes and customer names and locations.

 

Ultimately, the rip-and-replace approach forces organizations to ‘reinvent the wheel’ as they hustle to standardize every business process, from supply chain to sales functions. But platforms that bridge the gap between legacy systems immediately leverage their benefits and functionalities, while also enabling consistent metrics and data. Most importantly, it is a smart way to prevent silos from forming.

Businesses get involved in M&As because they are trying to extend their platform to adjacent spaces or dominate a market. Both are valiant and worthwhile efforts. The trouble is, if the consolidation project takes too long, the market will likely change by the time they are finally ready for it.

 

 

 

Topics: Supply Chain Complexity, Supply Chain Execution, Supply Chain Optimization, Mergers and acquisitions

 

Recent Posts

RSS

Subscribe to Email Updates