The Key to Finding Synergies in Mergers and Acquisitions
If you are pursuing growth through strategic merger and acquisition activity, ask yourself: what is the best way to realize the full potential of operational synergies? Taking a close look at how—and why it matters—is crucial to success.
Mergers and acquisitions offer the promise of a quantum capture of market share but also introduce discontinuity, complexity, and inefficiency. Production output levels, multiple vendor relationships, and numerous facilities can make synergizing and creating optimized operations a challenge for large and growing OEMs. There are several reasons for this, including:
- Differing quality system and processes standards
- Inefficiencies in shipping and distribution processes
- Multiple (and often redundant) vendor relationships
- Newly acquired facilities and staff
The last point—newly acquired facilities—is an important one. When you acquire a company with its own facilities, and you take on that facility and its staff, you must make the right decisions, or your costs will rise, and your profitability will be damaged.
Most of the time, unless you’re willing to close facilities, critically evaluate staffing, and consolidate vendor relationships, you’re likely not going to realize the operational synergies that are the key to unlocking growth and profitability through M&A.
Expertise in consolidation: quality and tactics
Consolidation can be very difficult to do without an expert partner who understands efficiency and outsourcing decisions. Why? There are two reasons.
First, it’s far easier to fix issues at the time of acquisition than it will be later. Most of the time, the company you acquire will be smaller and nimbler but its quality systems will lack sophistication compared to yours. Those quality standards likely wouldn’t pass muster if you were starting a new facility. Additionally, it’s very time-consuming, costly, and tricky to address quality remediation while you’re operating a facility. A facility closure or transfer can be the right fix.
Second, in most organizations, the M&A people are the strategic thinkers. They seek out pockets of opportunity in a product line, portfolio or market share. Once the acquisition is made, the tactical thinkers in the company take over. Instead of focusing on the why of acquisition, they’re focused on the how of everyday operations—as they should be, given their role. An expert partner with a neutral perspective can help you and your team identify the presence of synergies and make strategic decisions to best capture them. Even better, the right partner can engage with you during the M&A process itself, before the acquisition is complete, so you and your team can move quickly once the deal closes—when time is of the essence.
Developing a long-range focus
In acquisitions, it’s important to focus not only on where your company is today but also where you want the acquisition to take you over the next 18 to 24 months—and how you will get there. Willingness to consolidate gives you the ability to be strategic about capabilities and staffing, maintain quality and delivery standards, and pay the same or lower per-unit prices.
To gain those synergies and enhance profitability, it’s important to think strategically about difficult decisions. .
At Millstone, we’ve seen a great deal of M&A activity, and clients often engage us while in the acquisition process. Because of this, we’ve seen much of what can happen. In one example, a large customer acquired a company with a facility and a lean in-house staff. It took leadership more than two years before they realized that outsourcing was clearly the best utilization of resources and offered efficiencies they could not otherwise gain. In another instance, a client made a strategic acquisition and the new product line took off, but the acquisition lacked sufficient capacity to meet demand. Engaging Millstone offered the capacity relief required for success.
Realizing valuable synergies requires evaluating quality standards, process efficiency, shipping costs, vendor consolidation possibilities and—most of all—facility transfer and consolidation. Often, you’ll gain the advantage through expertise that enhances visibility and provides best-in-class processes and labor that can flex and scale with demand—in short, with the right outsourcing partner.
At Millstone, we get it. We believe quality drives patient success. That’s why we’ve perfected all the capabilities medical device manufacturers need to get to market. Today we offer post-manufacturing and aftermarket services to more than 50 customers, including some of the top 10 orthopedic companies in the world. We are constantly evolving our processes and services to help OEMs achieve sustainable success. We offer clean room packaging, medical device specific warehousing, finished goods distribution, loaner kit management, advanced inspection and reverse logistics services—all with an unparalleled focus on quality.
What could we help you do better? Learn more at http://millstonemedical.com.
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