“JumpStarting” Merger Integration Captures Quick Savings

When a consumer and healthcare products company acquired a rival firm, the new company sought more than $1 billion in cost synergies within the first year. Total external spend represented more than 50 percent of combined revenues. Procurement savings were identified as the largest source of synergies, but the speed and magnitude of the savings posed a challenge. Before the acquiring firm could begin planning the integration, the time-consuming process of antitrust review led to a months-long delay between deal announcement and completion.

Challenge
To help the new company develop successful integration strategies quickly, A.T. Kearney was engaged to guide both firms through the integration process, both pre-merger and post-merger.

Approach A.T. Kearney used a “JumpStart” approach to determine and realize procurement synergies in the pre-merger phase. Beginning five months prior to change-in-control, our clean room consultants acted as an independent third-party conduit between merger parties.

We reviewed operational savings across all direct and indirect spending categories while focusing on the biggest and highest-risk suppliers. We facilitated workshops called “synergy summits” where buyers from both companies met and agreed on the strategy.

The overarching goals of the JumpStart approach: To strive for deeper analysis, stronger organizational mobilization, and better preparation for execution in the pre-merger period.

Results
The following are the bottom-up assessment of best practices and prices:

• Original top-down savings target increased by 30 percent
• At closing, plans were in place to bring commercial terms together for more than 80 percent of the overlapping spend categories across both companies
• Within one week of closing, approximately 90 percent of the combined supply base of both firms was engaged, leading to faster-than-normal savings
• The company realized savings five months early, thus gaining months worth of cash-flow savings
• The company was able to mitigate some of the typical M&A pitfalls, including implementation delays, employees’ preoccupation with retaining jobs, and questions about what the future organization might look like.