We live in an ever-changing business climate. This determines what side many businesses fall per time, whether on the target side of acquisition or the buying side. According to Dealogic statistics, global M&A activities in 2015 hit $4.9 trillion, surpassing the record of $4.6 million previously set in 2007.
Also, the often touted synergy opportunities claimed by CEOs and investment bankers – who are primary beneficiaries of a merger deal, is still largely debatable. The fact is that only about 50% of mergers and acquisitions become successful in the long run. Therefore, this implies that a lot of forces come to play during acquisitions and mergers, which can directly or indirectly affect the outcome of the deal. It becomes imperative to employ every potential strategy which promises a healthy and successful merger.
Importance of the procurement team in M&A
The role that the Procurement team plays in the activities of M&A cannot be overemphasized. During mergers and acquisitions, each business unit in the new enterprise needs to reduce Total Cost of Ownership (TCO) and run as efficiently as possible to make the business profitable and achieve synergy goals.
The Procurement team can achieve the total cost of ownership reduction and maximize savings through the following:
- Streamlining the supply chain.
- Leverage on the economy of scale to develop more efficient and effective procurement strategies, such as savings in terms of rebates and discounts; and
- Enhancing market reach and visibility of the new enterprise.
However, achieving synergy is quite a daunting task, and dreadfully requires multifaceted approaches. Therefore to achieve synergy, the following factors must be considered.
Well-articulated plan of how the new enterprise will go about making sure its synergy goals are achieved.
Preparation, Data Collection, and Analysis
Data gathered during due diligence by M&A management team may give insight as to expected synergy outcomes. However, parties involved in mergers usually withhold certain vital information until the closure of the deal. There could be a severe setback for the estimated synergy value indicated in due diligence reports.
Once the deal is done, critical decisions have to be made to achieve synergy as quickly as possible. Action teams are formed, equipped, and put to work immediately to achieve synergy goals.
There is a need for a unit to be created to oversee the synergy project. The aim is to check if synergy goals are being attained as planned through the activities of the procurement team and other business units.
The use of clean room services
Nowadays, M&A use virtual data rooms over the traditional data room. It, therefore, is not unlikely to come across the term “clean room”. The virtual data room offers a secure platform for business buyers and sellers to share vital documents that require due diligence. However, there are also legal concerns about extra sensitive data. That includes trade secrets, formulas and so on. These extra sensitive data are often extremely protected. Should the buyer and seller not close the deal, such vital information would not be used against either of the party.
These sensitive data are also essential in making synergy decisions. Considering the potential impact sharing such data would have on both party, the need for an unbiased third party with secure access to the sensitive data becomes necessary. This resulted in the birth of “clean rooms”.
A clean room is simply a section of the virtual data room. It is used to share information with highly restricted access.
Third-party mediators between business buyers and the target company form the “clean team”. CEOs, CFOs and other key business stakeholder required for M&A management will have access to the virtual data room. However, only members of the clean team have access to the clean room within the virtual data room.
The clean team is usually made up of the data room administrator and a few of the buyers’ advisors.
Members of the clean team are legally bound by strict impartiality and confidentiality protocols. So each party needs to worry less about the confidentiality of vital information shared in the clean room. The clean team only present their reports based clean room data analysis to their clients. The clients work on the report to determine whether or not to close the deal or adjust specific terms of the deal.
What is the best way to optimize the procurement of M&A services?
The best method for optimizing the procurement of M&A service hangs on involving clean room services as early as possible in the M&A process. This may not be easy, but it is achievable. With this approach, the Procurement team can quickly note areas of possible synergy. They can start strategizing and creating action plans towards the attainment of synergy goals. The time and money saved after the deal give procurement the confidence required to follow through their action plans. When the procurement team is involved early in the M&A, they tend to get a faster and better view of the impending tasks. Compare this scenario with one in which the Procurement team was handed paper reports after a final deal.
The Dealroom M&A management software can help you achieve faster M&A processes. With the capacity to accommodate clean room services at any stage of the M&A, you stand a better chance of achieving synergy goals with the range of tools made available to suit your specific business needs.
Do you want to use M&A services or you wish to share your experience with M&A services you have used previously? Kindly drop your comment, and we will follow up.
(Featured image by DepositPhotos)
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
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