Abstract: It was felt by some economists that activities related to mergers and acquisitions have slowed down but it was later seen that since May 2005, mergers and acquisitions have made a comeback with a renewed vigor. A point worth being noted is that those companies, who excel in their performance have a peculiar knack of maintaining an equilibrium between long term as well as short term objectives. They do it very efficiently. The question lies in the fact that how effectively synergies assist in making mergers and acquisitions (M&As) a success. Supply chain perspective of synergy plays an important role in deciding the fate of mergers and acquisitions. M&As are said to be successful if it helps in increasing the value of shareholders. The successful companies also give due importance to the supply chain..
Importance of supply chain perspective of synergy: Studies conducted on issues related to supply chain shows that the efficiency with, which the supply chain matters are handled directly impact the success of M&As. Supply chain perspective of synergy is particularly important for merging companies because the newly formed company intends to:
Perform well by exploring new markets.
Consolidate excess capacity
Rationalize channels of distribution.
Therefore, supply chain perspective of synergy forms an important ingredient in the process of M&As. For similar reasons supply chain is given so much importance. Failure of mergers and acquisitions can be attributed to the fact that business strategies adopted by these companies failed to address the true aspects of supply chain effectively. Hence, the success of mergers and acquisitions is determined as to how competently the supply chain perspective of synergy is tapped. Supply chain constitutes one of the main sources of synergies, making up approximately 30% to 50% of all synergies.
Supply chain perspective of synergy impact the following areas: In addition to costs supply chain perspective of synergy affects the undermentioned areas:
Expenses related to operations: The effectiveness with, which a company purchases services and goods and how diligently the supply chain is routed in the entire process impacts operating margins and net income. Revenue: A sound supply chain renders protection to revenues at times of transition. It ensures that orders placed by the customers are not disrupted. It enables the organization to maintain a top line growth pertaining to new markets, new products and topography.
Capital expenditure: Effectiveness of strategic sourcing pertaining to operations in supply chain affects the outflow of cash in a company. The reason being supply chain takes into account physical assets like fleets of trucks, assets pertaining to telecom network and warehouses.
Working capital: The efficiency with which raw materials are converted into goods by the supply chain and made available to the consumers and the payment made by the consumers for the same goods plays an important role in the cash position of the company.
Experts say that rather than treating supply chain perspective as a topic of discussion after a merger, it is more desirable that the topic be dealt with prior to striking the deal. Discussions related to supply chain should not be treated as a ” post merger activity”, rather it should be treated as pre merger agenda.
Last Updated on : 29th July 2013