10 January 2015
WHEN TWO HAS TO GO INTO ONE
Your company has worked tirelessly on a consolidation or a merger with another company in the food industry. The financial modelling looks feasible. With the completion of the regulatory checks, due diligence process and acceptance from both boards — the transaction is in full motion.
Now the two companies are combined, the financial plan must become a commercial and physical reality. It is often the case that, at this point, the financial analysis has not included estimations of the capital works required to fully integrate the two businesses.
Whatever the motives for change, the primary management goal will be realising commercial operating synergies as quickly as possible. This process will involve rationalisation, consolidation and usually expansion.
If inadequate information is gathered and insufficient rigour applied at this critical time, the goals determined in the business case may not be reached. Many companies seek external input for the financial model and then try to carry out the physical integration themselves.
But the reality of merging more than one business entity is complex, due to the numerous dynamics involved. It is then that the unforseen challenges they face along the way often compound, creating an untenable situation — the opening of Pandora's Box. In some cases, it is a matter of what you don’t know that you don’t know.
The process of physical integration requires impartial and educated decisions to be made at management level. Identifying major considerations early relating to cost, time, performance, compliance, safety, hygiene and insurance issues, can save time and money down the track.
The ultimate outcome of a consolidation, merger or acquisition should ideally be to put the two merged companies in a better position than they were in prior. What is needed, very early on, is a clear, strategic plan on what is to be achieved and how.
The integration team plays a critical role in ensuring the commercial success of the integration, merger or acquisition. In day to day operations, management and staff in the food industry specialise in what they do best. A merger situation inherently takes all parties involved out of their comfort zones. They may not have skills required to be ‘merger specialists’.
Obtaining sound expertise on process engineering, architectural design and services layouts will help to avoid risks and identify opportunities to improve business. By sourcing experts for the physical integration of two entities, each department, subsection and individual know what is expected of them. This knowledge in-turn brings about a sense of order.
Wiley’s past experience in plant consolidation and greenfield projects can assist you at any stage of your merger, acquisition or consolidation.
Monopolise on the unique opportunities
The following table identifies some opportunities that may be presented to management at this crucial time of change. It can be applied to every product family the new company wants to produce.
|Improve process efficiencies||Consolidate facilities through expansion of one|
· Best location
· Space availability
· Services capacity
· Long term plans
· Disruption to operations
· Optimal layout
· Suitability and utilisation of existing equipment
New Greenfield facility
· Land zoning
Improve supply chain
Consolidate warehouse and distribution
· Best location
Introduction of automation
due to increased volume
· Warehouse practices
Reduce operating costs
Integrate business systems
· Technical culture
to reduce labour costs
· Staff training
· Product yield
Improve asset utilisation
· Product range
· Optimal layout
· Condition of existing equipment
· New technology
· Lead time
· Ease of relocation
· Down time
About the author
Andrew Newby is the Business Development Director at Wiley and can be contacted on 1300 385 988 or email firstname.lastname@example.org.
This article was published in Food & Drink Business Magazine.
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