News focus: Keeping a grip on mergers

10 May 2010

13 May 2010 | Lindsay Clark & Rebecca Ellinor

As mergers and acquisitions become more common again after a dearth during the global recession, Lindsay Clark & Rebecca Ellinor ask how buyers can benefit

Planes, rental cars, cocoa and computers. They may not seem to have much in common but they have all been in the news this year for the same reason.

Car rental firm Hertz is set to merge with Dollar Thrifty, Kraft has acquired Cadbury, and HP is buying Palm computers. Recently, United Airlines joined the trend as owner UAL said it would merge with Continental Airlines.

Following its recessionary hiatus, the merger is back and procurement professionals need to be ready. Citigroup believes that mergers are set to grow for three or more years, to peak around 2013 or 2014.

Although heads of procurement may risk being ousted if their company is bought out, overseeing a merger in a thorough and professional manner can advance your career, says Craig Lardner, group procurement director, George Weston Foods in Australia.

Lardner had been global procurement director at the industrial gasses firm BOC for 10 years when it was bought by German-based firm Linde in 2006 for about £8 billion. “Having had the experience of an acquisition, I bring to the business how to plan and go after [mergers]. It has made me a more rounded procurement professional and a better general business person.”

Communication is key to managing the initial shock of takeover news within a procurement department, Lardner says. “Communicate the hell out of this; over communication is a good problem to have. There can be a vacuum of information during a merger. Sometimes you do not have that information; I found myself often saying, ‘I do not know myself, but I’m going to tell you as soon as I know’. And that’s what we did.”

He said it is wise to offer incentives to the best of your procurement team to encourage them to stay the course of the merger. “It’s important you do not lose the talent in the transition phase.”   
“The message might be ‘we will reward you over and above [what you had] before: this will take extra effort.’”

Whether procurement will be involved in the merger from the beginning, middle or towards the end of the process depends on the business case for the acquisition. If the acquiring company is getting a customer base, or intellectual property, procurement may not feature heavily in the early stages, Lardner says. In the case of Linde and BOC, there was a great deal of overlap in procurement – of tankers, cylinders, raw materials, gas, engineering, cryogenics to name just a few.

This greater buying power can be the crux of an acquisition and make procurement key to its success, particularly with listed companies, says Simon Peters, senior of UK 
supply-chain products with consultancy firm Accenture. “It is a great opportunity because the work that you have done means the chief executive can get to the City and give 
a communication in terms of third-party savings. Procurement is the engine of that. It is a great platform 
for procurement professionals to lift their game.”

However, there is no doubt it can be a worrying time. In California last month during the Institute for Supply Management Conference, Kraft Foods senior vice-president of procurement Julia Brown said the Cadbury acquisition had been “challenging”. It was considered a hostile takeover until mid-January when the board accepted the offer. But she added she had been “very impressed with the level of talent at Cadbury” and said the company was working on the integration of staff.

This is a good sign. Impressing during a merger shows procurement professionals excel the rest of the time, according to Scott Pezza, supply-chain analyst with the Aberdeen Group. “Effectively handling M&A’s impact on procurement uses the skills we see as having an impact on non-merger-related performance. If you lack visibility into existing contracts, you are likely to have higher levels of off-contract spend, which impacts profits.”

So as the mergers ramp up, maintaining a good hold on purchasing activity and relationships will stand buyers in good stead, whether their company is involved in one, or not.


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