Global supply risks

Understanding Potential Impacts of Your Supplier’s M&A

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In recent months, acquisitions have taken a very forward and active route as companies look to boost their growth and market share. When these transactions take place between supply-side companies, it’s important for client companies to understand why the M&A is happening. Depending on the driving factors and strategic objectives at play, the impact on the client organization can vary widely. In this blog, we highlight a sample of recent M&A activity and share our point of view on possible impacts to buy-side companies.

Acquisitions are on the rise!

Last quarter, our research and analysis service, Supply Wisdom Alerts, noted several organizations restructuring their service models and re-evaluating their growth strategies. With the start-up industry booming and the insatiable need for newer and more efficient technology, many established companies are leveraging acquisitions as a way to better serve their clients by filling gaps in their service delivery.

IBM has been actively acquiring to invest in its Watson business. The service lines offered by the company are in multitudes. From hospitality to education, public sector to federal services, the IBM Watson has created a niche that services all clients for any specific requirements harnessing cloud and analytics.

At the same time, all of Accenture’s acquisitions have been towards its two divisions: Accenture Strategy and Accenture Interactive, which focus on digital marketing and commerce. Since March, the company has acquired over 8 companies from all over the world to fill its incomplete service lines.

Perhaps the most talked about subject with tech industries all over the world is the Dell and EMC merger which took markets by storm over the past few weeks. This acquisition bears significance as it is by far the most promising and largest deal in tech history valuing EMC at a whopping US$67 billion. With this cash and stock deal to buy EMC, Dell is now in process to strengthen its transition from a consumer facing company to one that plays a more central role by focusing on technology for large corporations. In a world that has largely migrated from PC’s to mobile devices, this deal is a huge bet for both companies that are struggling to make a future for themselves.

Practical Insights for Client Companies

From the client perspective, a merger or acquisition presents an opportunity to reflect on potential impacts that the newly formed company may have on their operations. In the Dell/EMC acquisition, since Dell is largely in a commoditized space as a laptop vendor, there is potential for EMC clients to consolidate spend by consolidating vendors. In this case, laptops are easily substitutable, so if you currently have a contract with EMC but a different laptop vendor, Dell might become more attractive.

In the initial months of the newly formed company’s existence, you can expect signifcant changes the organizational structure, in terms of streamlining roles and physical assets to achieve efficiences, as the two companies transition to a single company. A common concern when an acquisition is in talks is the possibility of layoffs and job cuts. This can affect the client companies as it involves the exit of key personnel that could be detrimental to their projects’ success. Including key personnel clauses in new contracts or renewals will help minimize the impact of such attrition.

Monitoring the progress of these M&A deals can be beneficial to client companies that can effectively leverage opportunities arising out of these. First things first, establish open and clear communication with these companies’ officials, espiecially if these are your Tier 1 suppliers or vendors. At a governance level, if you have seniority and are a big client, you want eyes and ears on your supplier’s new roadmaps and investment strategies to make sure that they will continue to move in a direction that supports your needs and objectives.

Turning Insights Into Action

Whether the anticipated impacts of a merger or acquisition are positive or negative, it’s important to remember that any change in your suppliers’ business operations is a trigger for you to assess the situation at hand. A thorough analysis and a proactive action plan will help you make the best of your suppliers’ organizational changes.