Planning to Acquire or be Acquired? Spend Analysis Can Help

Last week, Seth Balsam, Director of Global IT Sourcing at Ciena, contributed to Iasta’s Webcast, Using Spend Analysis to Smooth the M&A Path: 4 Steps to Consolidate Your Purchasing Power. When Ciena acquired Nortel’s Metro Ethernet Networks, Ciena literally doubled its size overnight:  twice the revenue, twice the customers, and twice the employees. All those doubles don’t come for free. Even though spend data doesn’t get a lot of headlines in M&A news, the merger also resulted in twice the spend.

Prior to the merger, indirect spend had not been a strong focus for Ciena’s sourcing group. After the merger, when indirect spend doubled, there were increased expectations to realize savings from the merger synergies.  Ciena identified lack of spend visibility as their largest obstacle and used the merger as a catalyst to roll out a spend analysis initiative. Then, they used the cross-organizational and cross-commodity spend views to strengthen their position during negotiations with suppliers.

Balsam painted a convincing picture demonstrating why companies who are growing rapidly through mergers and acquisitions need spend analysis to effectively integrate all the new spend into their sourcing organization. You can download the presentation slides from the Webcast for more information.

But what about the companies on the other end of the deal? The ones who are actively grooming themselves to be acquired?

Obviously, anyone trying to sell a company is going to work on making the balance sheet more attractive to potential buyers. Managing spend is a proven factor in increasing profitability, but the benefits of spend analysis go far beyond making your balance sheet more alluring.  According to an article in the Deloitte Review titled Post Merger Integration: Hard Data, Hard Truths, one of every two Post Merger Integration (PMI) efforts fails.  That’s 50% which is high risk by anyone’s yardstick.  The same article named achieving cost synergies as one of three primary metrics for measuring the success of a PMI.

If you’re looking for a buyer, you need spend analysis to provide potential buyers with spend visibility so they can accurately forecast cost savings that could significantly enhance a merged bottom line.  The reciprocal is also true. If you’re considering acquiring another company then you should know not only the quantity of their spend but the quality of their spend data before you buy.  It will boost your ability to consolidate suppliers, minimize risk in the supply chain, and achieve cost synergies in the merged company.

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