Integrating procurement in acquisitions and mergers
William Atkinson -- Purchasing, 11/4/2004 2:00:00 AM
Managing a procurement department on a day-to-day basis is challenging enough. But when your company becomes involved in a merger or acquisition with another company, the challenges can multiply exponentially. In addition to the basics of integrating the two companies, the two purchasing functions, and the two supply bases, procurement executives must also address the turmoil, confusion, and fallout associated with the rumors that accompany such acquisitions or mergers. If this is not handled properly, the transition will likely be anything but smooth.
John Kist, director of purchasing for Comcast Cable in Philadelphia, knows a thing or two about mergers, having worked for 20 years at AT&T and Lucent Technologies before moving to Comcast. Kist has been involved in eight or nine mergers and acquisitions and has an insider's perspective on what does and doesn't work when it comes to combining procurement systems and processes in a merger.
In addition to managing inside the eight walls of the two procurement departments before, during, and after acquisitions and mergers, Kist feels procurement executives also need to focus on rationalizing the two supply bases, which involves keeping the number of active suppliers to a minimum in order to manage costs and reduce expenses associated with qualification and maintenance of the supply base.
"The most important key to success during a large acquisition is consistent and frequent communication with everyone involved, especially those in the acquired company's supply line team, suppliers, and the acquired company's suppliers," he says. The second key is to create a comprehensive plan and then execute against the plan.
Key tasks
Kist cites several keys that helped him in navigating through a large merger earlier in his career. His company (the buyer) created a project management team, which had five responsibilities.
-
Identify and validate the supplier management model.
-
Detail and categorize the strategic supply base that each side had (the acquiring firm and the acquired firm). This included conducting spend analysis by supplier, by technology, and by commodity.
-
Review all of the contracts and agreements each firm had in order to understand obligations, liabilities, and who had the best deal. Contract reviews included categorizing agreements by supplier and technology, identifying mandatory terms, and reviewing current obligations and liabilities.
-
Identify key stakeholders and owners of pieces of the business from nonsupply line management groups. Stakeholders included subject matter experts, cross-functional team members, and support staff (such as legal, engineering, and administrative representatives).
-
Develop and execute against the project map.
Kist says one of the largest acquisitions he was involved with was Lucent Technologies' acquisition of Ascend Communications, a $24 billion acquisition that turned out to be a total failure. Lucent is currently worth $16 billion, and only 20% of Ascend's products are still being sold. Kist attributes much of the failure to the fact that the two companies never found a way to integrate their supply line management teams. "They acted as if they were still two different companies," he says.
Success
But Comcast's 2002 acquisition of AT&T Broadband was deemed an unequivocal success, for a number of reasons. Kist says the day after the purchase was completed, Comcast had two dozen of its most senior executives take over key roles in the AT&T territories. In addition, the executive team did a lot of blocking and tackling and spent very little time on fluff.
"That team created a very clear, straightforward, and objective plan of how we were going to integrate the two companies, where we were going, how we were going to get there, and when we were going to get there," Kist says. As such, there was virtually no confusion or waste of time.
One of the biggest challenges for people in an acquired company's supply line team is dealing with the confusion, uncertainty, and the development of rumors.
"If you know you're going to be there or know you're not going to be there, then you can go on about your business and get your work done," he explains. "However, if you don't know for sure one way or another, then you spend all of your time trying to create strategies to keep yourself in the job."
One thing Kist learned during Comcast's merger with AT&T was that reading through supplier contracts at the acquired company can help gather and understand all of the details of the deals and what commitments are in place. This also helps the combined companies move forward with intelligent decisions on supply base rationalization.
According to Kist, when people talk about supplier relationship management, most of them talk quantitatively about how much they spend, what part of their total spend is involved, how the suppliers fit in their commodity management strategy, etc.
"You also need to focus on qualitative aspect of relationships, such as getting to know your suppliers and personalizing the relationships, which is what we did," he states.
In assessing the existing suppliers at AT&T, the Comcast team identified the ones that had the largest dollar impact on the business and/or the most strategic/technical impact. Then, once the acquisition was completed, they began conversations with senior executives in those supplier organizations so they understood what would and would not happen. All of the suppliers knew where they stood clearly within 60 days.
The team also assessed a set of savings metrics to make sure it was leveraging the power of the combined companies after the acquisition. "This was to ensure that our savings and discount structures would be better," Kist explains. During the acquisition, the team reviewed over 100 agreements as potential candidates. Ultimately, about three dozen received the appropriate consents and were replicated for Comcast.
As a result of the efficient management approach to the acquisition, there ended up being no duplication. "Everything became one system within 30 days," he recalls. "The result was that everything was treated as if we were one company within 90 days after the close."
Things have worked smoothly ever since. There was no slowdown or delay of business during or after the transition and the company was able to maintain continuity of supply. The plan at Comcast was to build out and upgrade 85% to 90% of its network that it had purchased from AT&T within the first 18 months after the acquisition.
"The acquisition went so smoothly that, within two weeks after the acquisition, we had already started the upgrade project," Kist says. "In fact, the project proceeded so smoothly that we achieved 90+% within the first 12 months."
Despite the success of the acquisition, Kist learned a few more things that he plans to utilize in the event of another acquisition or merger. "If I became involved in another acquisition, I would spend more time and effort on the spend management activities of the two companies," he states. "I would try to work more quickly to leverage the combined spend."
Day in Court for Rohm & Haas
02/12/2009LUCENT TECHNOLOGIES
09/15/1999Retiree Health Benefits
09/11/2007E. Europe’s supply base starts to evolve
01/25/2006
Now Playing: 