What’s old may be new again – M&A and eAuctions – Part 1

As is often the case with many ideas in business, trends capture attention of decision makers in terms of what is possible. Procurement is no exception. Consider progressive concepts that advance procurement activities related to emerging areas such as in supplier risk or predictive analytics; both hot areas where Iasta continues to be focused for defining the modern sourcing paradigm.

But trends also come from what was once considered old with a new spin. A perfect example of this is in procurement’s use of eAuctions; as a traditional sourcing strategy that by some has come out of favor, eAuctions may play an increasingly potent role in a business environment that anticipates increased Mergers and Acquisitions (M&A). There are many fundamentals that make eAuctions a perfect tool for procurement in post M&A scenarios, but let’s understand the context first.

Despite global M&A activity being weaker than at any time since 2009, many pundits anticipate a surge in M&A activity due to “pent-up” demand from an abundance of capital. For instance, a KPMG poll shows that more than 40 percent of respondents expect their organizations will be involved in a merger or acquisition in the remaining half of 2013, with 19 percent of companies involved as a buyer, 12 percent involved as a seller, and 11 percent involved as a buyer and seller. Still another study from PWC’s Annual Global CEO Survey, reports that US CEOs anticipate an increase in M&A activity in 2013 with 42 percent anticipating a domestic acquisition.

Ironically the optimism of this anticipated trend is in stark contrast to the traditional failures of M&A that frequently yield less than favorable returns, particularly in capturing synergies of the new combined entities. Academics and analysts alike have often debated the value of M&A, where most research indicates that failure rates of M&A typically range around 50 percent, but can be as high as 90 percent! This points to a fundamental flaw of where crunching the numbers in the boardroom may be failing to account for a necessary planning for how to make M&A work.

As a traditional late comer to the pre- and post-M&A discussion, procurement has been increasing its presence in these discussions through its ongoing quest of getting a seat at the proverbial table. When procurement focuses more on becoming a strategic partner with finance and other lines of business, the potential to change the success rate of M&A could be immense, especially if you consider that supplier management can make up as much as 70 percent of a company’s activities. Even in discussions with our clients, it is clear that two or three years ago procurement’s involvement in decision making related to M&A was only after an email was sent out that a merger or acquisition was announced.

With increasing strategic responsibilities at hand, procurement’s involvement in M&A discussion is essential for managing a new supply base in a post- M&A environment, as it requires the due diligence related to spend and supply base synergies for managing new or redefined source to settle processes. Moreover, the increasing importance of effective supplier management in an environment of higher supplier risk and regulatory compliance, makes it even more evident that integrating multiple supply bases, upstream / downstream procurement processes, and procurement teams from different company cultures as vital for not only realizing the synergy benefits anticipated during pre-M&A planning, but also for avoiding unforeseen risks due to lack of planning.

Supplier management activities in the immediate post-M&A environment thus need to focus on supplier consolidation for preventing and mitigating the overlap of spend in categories today, while addressing supplier optimization approaches that can lay a good foundation for supplier management in the future. There are many elements that go into post- M&A planning, but one that’s essential to procurement’s success in the M&A game is the reliance on eSourcing technology that can quickly, yet fairly assess the “new” or “modified” supply base, and the contractual commitments tied to them. And by their design, eAuctions may be the answer to establish that foundation.

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