Mergers and acquisitions have often been
justified on an objective to totally control a value chain.
In the past decade, with increasing information and telecommunications
capabilities between companies, it is now possible to “command”
the value chain without necessarily owning it. The following
table indicates elements of the relationship between M&A objectives
and Value Chain improvement objectives.
M&A Research Results (KPMG Global
Survey 2000) |
Application to Value Chain Management |
Global survey covering 118 major companies
found that 70% of deals did not enhance shareholder
value discernibly.
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A primary objective of value chain
improvement is to increase performance and shareholder
value along the chain.
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Deals that focus on gaining control
of supply chains tend to be looked on more positively
by the markets.
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Value chain management has been shown
to increase shareholder value for those members of the
chain that are relevant to the ultimate customer. Other
chain members may find themselves irrelevant and hence
in danger.
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While 70% of companies had dedicated
internal M&A teams, these had little impact on the success,
suggesting that these teams were not following due process
or assessing the detail required.
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Value chain improvement projects typically
develop relationships between companies at all levels.
These promote a genuine understanding between the companies
which can provide a very sound foundation for a future
M&A.
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Conducting a full pre-bid value assessment
was a key practice for success.
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Companies working in a value chain
arrangement develop an understanding of the value of
their partners as part of the normal approach to building
an effective chain.
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Allocating responsibility for the
M&A process to a key process manager was found to be
71% more likely to succeed.
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Development of effective value chains
requires facilitation by a senior manager(s) from the
companies Ð this person must have cross-functional and
cross-company responsibilities.
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Objectivity is frequently disregarded
in favour of a psychological commitment to the deal.
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Objectivity is evident in that an
effective value chain relationship is founded on improving
the profitability of the customer-supplier interface,
which is objective or it does not last.
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Measures of success are frequently
manufactured in the post-deal period to enable positive
reflection on the deal. Only 25% of companies measured
performance against increasing shareholder value.
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Value chain improvement is typically
based on either reducing costs or increasing velocity
through the chain, both of which tend to increase profitability
and shareholder value and are measured by simple indicators.
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While 97% of companies surveyed had
formal business plans, there appeared to be no definite
link between corporate strategy and M&A strategy.
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Part of the process for defining a
good value chain improvement project is to align the
project as closely as possible to the strategic intent
of the value chain members.
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Research noted problems in the costs
of time and money to undertake analysis into deals,
especially for smaller companies.
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Developing an effective value chain
relationship prior to a merger allows analysis to be
done as an integral part of improving the performance,
without major extra costs.
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M&A teams did not tend to focus on
the broader process which includes cultural, synergistic
and internal political aspects.
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Effective value chain improvement
projects involve the broader issues as a vital component
of the project. People issues make or break value chain
projects.
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