Acquisition announcements almost always have a statement of expected synergies. This could be because of overlapping markets and sales channels, production locations, overhead and many others. Not infrequently also it is assumed that a part of the synergies will come from the overlap in the supply base.

Where some of the synergies get a lot of attention and could be estimated well by the acquiring company, the synergy play on the supply base is frequently more challenging. Most of the time the information packs hardly contain any information on the supply base and even if you make it to the data room, also here the information availability is normally quite disappointing. And if there is data, sometimes it can be only accessed by a clean team.

Hence a good market study should be done early in the process. What do we know from the acquisition target, where do they source, what are their sourcing tactics and strategies. Unfortunately, while professional buyers in fact pick-up quite some good information on competitors, different than many sales organisations, the data is not analysed and stored in an useful format quickly available. While sales or operations is mostly part of the (early) acquisition processes, not many companies involve their procurement departments early. Whether it is an oversight or there is an intrinsic view that they will not know, in all cases a review on the “new” supply base should be made.

Having worked with private equity on many projects as well as having been part of acquisition processes in public companies, doing the right due diligence is crucial. Too frequently synergy assumptions are significantly over- or underestimated and only the positive synergies are taking into account, while negative synergies do exist as well.
If involved early in the process, we can help your procurement team to collect the information that they have, even without knowing it, and / or seek if we quickly can get some data from the market. We can help a clean team to ask the right questions rather than generic questions, looking at opportunities while not forgetting the risks.

Key to delivering synergy success after an acquisition is:
• Markets of the supply base (purchasing power, market principles)
• Expected overlap and technology gaps / complexity
• Implementation
o Day 1 tactics
o Upgraded sourcing strategies
• Day 1 and subsequent procurement organisation and alignment

Let’s look jointly beyond the “let’s assume a 5% procurement synergy”.