Optimizing Acquisitions

Acquisitions provide companies with the opportunity, if executed well, to accelerate growth and create value in their business.  However, poorly executed acquisitions that are overvalued or not integrated well can have negative impacts up to and including loss of your investment.

For manufacturers with typical materials costs of 50-70% sales the supply chains and purchasing practices they acquire and integrate are one of the keys in creating and maintaining value.

For insight on this topic, we engaged Scott Eisenberg, Partner & Co-Founder, Amherst partners and James C. Penman, Managing Director, Industrials, Donnelly Penman.  Scott and Jim summarized the current acquisition climate as active, but not overheated.  Scott indicated that “The balloon has come off the ceiling for manufacturing company acquisitions.  Good companies are still selling but transaction volume is limited.  There is a lot of money chasing quality companies.”   Jim summarized the automotive market as “Still a fairly good market with acquirers more strategically focused on buying to fill in a strategic need rather than restructure financially.”

Manufacturers Looking to Acquire Should:

  1. Make sure their current business is running optimally, especially if they are open to acquiring a “fixer upper”. Adding one low or non-performing business to another most likely will lead to an ongoing distressed situation.
  2. Evaluate potential acquisitions based upon three criteria: strategic fit, valuation and execution.
  3. Understand if key customers see the same strategic fit that you do. What may seem like a strategic fit to you may seem threating to the customers and provoke lack of support.
  4. Have an integration plan developed long before Day 1. Don’t wait until the deal is closed and remember that integration is not a quick and easy process, especially for big companies.  In all cases, the acquisition integration plan should prioritize figuring what has to be done to retain key people and skill sets.

Purchasing Organizations in Acquiring Companies should:

  1. Ensure the business processes within purchasing and in support of other functions are running well and have fully developed strategies (spend, supplier and commodity). Have supplier contracts organized.
  2. Gain as much understanding of the purchasing organization, business processes and strategies in the acquisition. Strive to become an active participant in the due diligence and integration process.
  3. Be active in identifying material and organizational efficiencies identified as a part of an acquisition. Best case; Purchasing helps develop and owns these; worse case, Purchasing is informed after the deal is done.
  4. Understand how well customer and supplier agreements are synchronized especially for pricing givebacks and commodity prices. Don’t be seduced by the relatively benign environment for commodity prices.
  5. Get involved in discussions regarding the information technology roadmap for Day 1 and beyond. Chances are supplier pricing and performance on Day 1 will be in separate ERP systems.  How will this be managed in the short, medium and long term?  Be involved so you can make sure purchasing’s needs and requirements clear.

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