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Managing B2B deals post merger and acquisition

Posted by Andrew Butt on December 7, 2018 08:34:00

We have witnessed a huge volume of merger and aquisition activity over the years, there were 1,560 recorded deals in 2018 valied at 182.6 bbillion compared to a whopping 6500 mergers and acquisitions were completed in the UK in 2015 with a total value of £433bn. 

Fast forward to today and merger and aquisition deals have totalled $42.9bn (£35bn), down 69 per cent on the same time last year, according to data from Refinitiv. But despite the large drop in value, the number of deals has fallen only five per cent.

What are mergers and acquisitions?

Mergers and acquisitions (M&A) involve the process of combining two companies into one.  A merger occurs when two separate entities combine forces to create a new, joint organization whereas an acquisition refers to the takeover of one entity by another.

Mergers and acquisitions may be completed to expand a company’s reach or increase market share in an attempt to create shareholder value. Plus, they could gain competitive advantages, or influencing supply chains.

If a company buys out one of its suppliers or distributors, a business can eliminate an entire tier of costs. Buying out a supplier, for example lets a company save on the margins the supplier was previously adding to its costs. Any by buying out a distributor, a company often gains the ability to ship out products at a lower cost.

What role does procurement play in mergers or acquisitions?

With all merger and acquisition activity comes the need to consolidate business between multiple companies and, after staffing levels, one of the most important areas for review is usually procurement.  To drive out economies of scale post-merger, companies look to analyse procurement spend and consolidate procurement contracts in order to drive out cost savings.

Post-merger procurement integration is challenging enough when there are contracts with different suppliers, start dates, prices, delivery costs and payment terms.  Given the number of variables, it can be fairly complex to map out price comparisons between products purchased in different locations from different suppliers. 

That complexity is multiplied in businesses where discount programs and rebate claims are common.  Good examples of situations where accurate discount calculation and supplier rebate management is needed include buying groups, building supplies and retailers.

Calculating accurate net-net pricing and projecting forwards to identify the most advantageous procurement deal can be almost impossible using spreadsheets.  Likewise many ERP systems don’t handle all of the complexities of supplier contract modelling very well.

Typical rebate problems that we have seen post merger or acquisition:

  • Consolidating purchase history and purchase projections by product where different units of measure are used
  • Analysing multiple contracts from the same suppliers in different parts of the newly formed group
  • Comparing supplier pricing where different units of measure are used from each supplier. For example, one may supply by the pallet and another by the kilo
  • Calculating net net pricing when comparing suppliers with different discount structures and supplier rebate programs.

Enable rebate management, however, was designed to help procurement manage and model situations with all of these complexities.  A fundamental feature of this rebate software is the ability to model contracts and help buyers select the most favourable based on historical and projected purchasing activity.

How can a newly merged business improve their rebate management process?

  • Model available contracts

The rebate management software provides the ability to replicate supplier agreements with all the complexities of rebates and tiered discounts with variations on volume, value, growth, targets and other criteria is all built into the software. In fact the rebate management software provides over 90 standard deal types to work with plus the ability to customise deal types to suit your exact needs. 

  • Project requirements

The next task is to project requirements for each product from each location based on accurate historical data and forecasts.  DealTrack enables you to upload historical data and gather live purchasing information for initial and continued accurate modelling.

  • Identify the best procurement path to take.

In some cases that will be one consolidated supply contract and in others (particularly where delivery charges vary significantly by location) a hybrid approach may be the best option.  Enable will help you to analyse and select the best route.

Enable users have saved large sums by accurately modelling procurement contracts, forecasting requirements and, therefore, being in the strongest position to negotiate the best prices across their organisation.

What can newly merged businesses use to manage their B2B deals?

We have a software solution that enables newly merged businesses to reap the benefits of improved buying power without the impediments of disparate ERP systems and complex spreadsheets.

It is neither a data warehouse, nor a new breed of ERP, but an entirely new solution that helps businesses manage the following key areas:

  • Pricing management
  • Procurement contracts
  • Supplier management
  • Rebate management

…across multiple ERP systems.

And let's not forget the suppliers in all of this.  A supplier dealing with a larger organisation rather than several smaller ones sees benefit in economies of scale too. This forging of mutual commercial targets between supplier and buyer is often realised in the form of rebates, and this is where our rebate management software excels.

If you are a post-merger business, looking to gain commercial advantage through enhanced buying power,  and you typically engage with suppliers by constructing deals that include complex rebates or retrospective discounts, our paper “Realising M&A synergies faster” represents a MUST READ for you.

Realising M&A Synergies Faster

Topics: Mergers & Aquisitions