Daily Archives: July 2, 2015

M&A: Is What’s Good for the Shepherd, Good for the Flock? Part I

As the doctor expected, the prophet has a different take on the recent M&A (merger and acquisition) frenzy that is again gripping the Procurement space and, contrary to the doctor‘s opinion, the prophet believes that, at least in the long term, it brings more clarity than confusion. Furthermore, in his posts over on Spend Matters, the prophet makes some great arguments as to why M&A is a good thing, at least from the vendor perspective.

But is what’s good for the shepherd good for the flock?

Let’s look at the cons that the doctor highlighted in his original post that asked if M&A was confusion or clarity.

  • Many acquisitions end up being overvalued
    As the prophet neatly summarized, the doctor has noted that some transactions often remain “in the red” even a couple of years after the transaction has been made. Maybe the value was there, but if it’s not captured, and the private investors and/or VCs start demanding realization, who’s going to pay?
  • Many acquisitions end up significantly overlapping in functionality / offering
    Does a customer need two RFX platforms? Two invoice management platforms? Two reporting engines? Nope! In order to streamline costs and operations, one of these platforms has to be axed, and a large portion of the customer base migrated. If the functions don’t map one to one, who loses?
  • Many acquisitions run on completely different platforms & stacks
    This makes integration a nightmare. Either a lot of work, and money, will need to be invested to make an integrated platform work or one platform will have to be selected as the core go-forward platform, critical functionality developed on it, and a migration strategy, and module, developed for the customer base that will need to be migrated. In the short term, costs will go up (and not down, which is what should happen if there is synergy).

Now let’s look at the pros that the prophet highlighted in his pieces on A Critical Take on M&A in Procurement Technology and M&As in Procurement Technology Work.

  • Differentiation by way of a broader solution offering
    than the companies could offer on their own, which creates
  • New Points of Entry
    into the market than a point-based solution can provide with a
  • Lower-Cost foot in the door
    since, even if the technology headcount can not be synergized, at least the salesforce can be (and sell more per unit). In addition, the combined company can effect a
  • Stealth-Transformation
    that allows the combined organization to offer more than each could on its own, because 1+1=3, and all of a sudden the new organization can graduate from the minors to the big leagues, with the support of
  • A Better Executive Team
    that is formed by bubbling up the cream of the crop for each position in a manner that allows each executive (who often had to wear multiple hats in the individual smaller organizations) to focus in on their key strengths which will help the company identify
  • New Products / Solutions
    that could be developed and brought to market by the combined organization that neither organization could consider on its own.

And these are all real opportunities that can be realized by the firms in question in a merger or acquisition that truly has the right synergy, but is what’s good for the shepherd good for the flock? Stay tuned for Part II!