Preparing for a Merger or Takeover

©ALL RIGHTS RESERVED - Confidential

Spend Matters UK/Europe Real World Sourcing

Preparing for a Merger or Acquisition

Guy Allen October 23rd 2013




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.




Agenda 1. Everything Changes

2. The Importance of Procurement

3. Preparing Yourself

4. Preparing Your Team

5. A Few Case Studies




'The only constant in life is change'

Heraclitus 500BC

Everything Changes




Research shows Procurement's Importance The Importance of Procurement




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




‘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




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



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




One Tactic to Avoid!

Either stay and learn, or leave quickly

Preparing Yourself




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.......




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




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




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




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




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




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




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




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




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




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




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




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




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




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




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




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.




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




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




THANK YOU!

Please feel free to contact me on

[email protected]

mailto:[email protected]




www.bravosolution.co.uk

Preparing for a Merger or Takeover

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