Last year was obviously the beginnings of a new M&A frenzy cycle in the Procurement Vendor space. Big names were scooped up by bigger names in an effort to expand their reach and/or capability in an effort to become the biggest name of them all. But is this good for Procurement departments? It depends on the synergy inherent in the acquisition. As summarized in the doctor‘s guest post over on the Synertrade blog on Surviving a M&A: The Customer Perspective, M&A synergies come from operational synergies, customer synergies, or solution synergies.

And these synergies will either come from complementarity or redundancy. Both can, theoretically, have a big impact on the bottom line, but one impact will likely be viewed much more positively than another from the eyes of customers. While bankers and financiers might be satiated with redundancy synergies when overhead prices get slashed and immediate profits rise (thanks to SaaS deals that insure license revenue keeps coming in month after month in the near term), customers are not always happy when their support teams, with whom they have built a relationship with over months or years, are eliminated overnight in one fell swoop.

That’s why the doctor believes that complementarity should drive synergies. For the big wanting to get bigger, they should seek to acquire a smaller provider that provides them with the synergy of complementarity across the customer, solution and operations dimensions. Specifically:

• Customer

  the provider of interest should have a largely non-overlapping customer base that could make use of the company’s solution in unison with the smaller provider’s solution — for e.g., if a S2P company without in-house analytics is trying to acquire a BoB analytics firm, that firm could likely use part or all of the acquirer’s platform

• Operations

  the unison of the providers should allow both parties to do more with the same back-office staff; i.e. the combined company should be able to grow without adding staff (and, moreover, the current staff should, more or less, be the best staff to grow the combined company)

• Solution

  the solutions should complement nicely without too much work and should not overlap too much

Vendors should not pursue mergers that get synergy from redundancy. Having to scrap platforms, cut people, or, even worse, having to make decisions that negatively impact the current customer base (that talks to their peers).

It might be the case that the best provider is not as big as desired, or that the best provider doesn’t have all the desired solutions, but, as the tortoise taught us, slow and steady wins the race. And even if the new combined company has to build a bit more than they would like to, a combined, synergistic, team always has an edge.