Managing a Procurement Organization Through M&A Activity
Managing a Procurement Organization Through Divestitures and M&A Activity
M&A and divestitures produce ample change in organizations, structurally, financially, and culturally. Divestitures are particularly disruptive. According to Investopedia , a divestiture is the partial or full disposal of a business unit through sale, exchange, closure or bankruptcy. This definition encompasses outright sale to another company, outsourcing, and spin offs. While this blog post will focus on divestitures, the concepts can be reversed and applied to M&A activities.
The primary reason for a company to divest is to enhance focus on a core competency. Selling part of a business raises capital to reinvest in the core, while outsourcing may reduce complexity. Divestitures have become more common in the recent bull market. Sales and exchanges are more common in a booming economy since more buyers are available and companies can recover more easily. For example, GE recently announced a complete divestment of its 62.5% stake in Baker Hughes over the next 3 years. GE also plans to spin off 80% of GE capital and divest 20%, hoping to focus more on being a premier high-tech industrial company.
Divestiture Impact on Procurement
As a procurement organization, managing this change and uncertainty during a divestiture can be difficult.
Divestiture activity takes place on two different timeframes, before and after the deal is signed. Along this timeline, this blog considers two perspectives of how to mitigate the negative impacts brought by change.
Before Divestiture: Leadership seeks to increase company value for the upcoming sale and preserve the primary company’s security. Management should employ the following strategies to maximize value and stability:
- Secure contract terms and pricing for as long as possible
- Negotiate to maintain terms of larger conglomerate for as long as possible
- Actively manage valuable supplier relationships by communicating early and often
- Maintain supplier information in database sources by cloning existing data before sale
- Ensure that key employees remain with the company
After Divestiture: The new CPO and his or her team of sourcing professionals should employ the following strategies to drive savings and maintain (if not improve) the status quo with suppliers:
- Integrate technology systems as soon as possible: RFP management, contract management, P2P, etc.
- Realign internal communication to key stakeholders and external communication to suppliers, given changes to the reporting structure
- Motivate employees and bolster morale. People are the key to success
M&A activity can shake procurement organizations of all sizes and reach. Following these strategies pre- and post-divestiture (or merger) will lead your organization to success with a path forward.