by Kalle Kilpi
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Article revisited on July 17th, 2017
Many retail chains are now looking to use mergers and acquisitions (M&As) to gain economies of scale, renew their business models, and/or add to their organic growth opportunities. The key drivers behind this trend are twofold: first, opportunities to find new, unoccupied retail spaces or locations are becoming increasingly limited, and second, new digital businesses are eating into existing business. The ground is also fertile for M&As because many large retail chains are in good financial positions and the leading players in many retail subsectors collectively hold cash balances that surpass the total market value of all midsize retail players*.
When one retail chain acquires another, the post-merger integration activities typically include updating the concept at all the acquired business’s locations, optimizing the supply chain to achieve procurement synergies, and integrating back-office functions.
Updating all acquired business locations
Updating a new concept (like branding, product line, and employee training) simultaneously at numerous retail locations is a huge challenge. Luckily, technology can help with that. The idea is simple: use technology to help define a process playbook for updating one location in a format anyone can follow and understand. Then create subprojects for each location and assign people to complete the process there.
Portfolio of store locations to be updated:
Step-by-step transformation project plan for an individual store:
Optimizing the supply chain to achieve procurement synergies
Procurement synergies can account for the majority of value creation in a retail post-merger integration project. How are these synergies realized in practice? Through reinitiated contracts with suppliers, real-estate owners, and other partners. Renegotiating contracts takes substantial work—and the main bottleneck here, again, is the limited number of people capable of performing these negotiations. How to accelerate this? Have your best experts clearly define the process for negotiating individual contracts along with best practices that are easy for anyone to follow. Then assign more people to perform the negotiations and run many more negotiations in parallel to realize the synergies faster.
Step 1: List the acquired company’s suppliers by purchase amount and then match them with the buyer’s accounting data to see which ones are already doing business with the buyer (prioritize based on where we can negotiate the largest volume discounts).
Step 2: Run the process to renegotiate contracts efficiently.
Step 3: Watch the synergies materialize.
More about this here.
Integration of back-office functions
Back-office functions such as legal, finance, HR, and so on have to be integrated quickly to avoid interruptions in service. Usually this is done in the first 100 days. The common approach is to divide the integration work into functional streams and have a project plan for each stream. The stream project plans then roll up to the master integration plan along with the procurement optimization pipeline and the location update pipeline.
Step 1: Define streams and a project plan for each stream.
Step 2: Collaboratively execute the integration.
Step 3: View progress in real time.
More about this here.
The post-merger integration of a retail business with many locations poses unique challenges. These involve simultaneously updating numerous retail locations, renegotiating thousands of supplier contracts, and integrating back-office functions.
Luckily, technology can help tremendously by making it easy to define the process and then help people execute the process by providing clear instructions and roll-up progress reports. This helps top management concentrate on the concept, middle managers on execution progress, and site managers on performing work at their own sites. The benefits of the accelerated synergies and other results are huge.
Midaxo is a pioneer in digital M&A platforms and serves many of the world’s largest companies. If you want to talk more, please feel free to send me a message or contact one of our specialists here.