In just a few days, certain industries have been rocked by the announcement of mega acquisitions, with many pending implications.
First was the announcement of Dell’s planned acquisition of EMC Corp. for a reported $67 billion. The sheer size and complexity of these two high tech providers will surely present major challenges in the rationalization of products, sales channels and supply chains. Some could rightfully argue that both of these companies were struggling with long-term growth strategies in their respective segments. Dell needs to move away from PC’s while EMC is mostly a collection of data management products that have yet to spur significant growth. The reported crown jewel is that of VMware, which activist investors have pressured to be spun-off as a separate unit.
And what about the scope of the added debt burden required in the financing this combination? One can only imagine the “cost savings synergies” that are being promised to investors in order to favor a positive opinion. As the Wall Street Journal just reported, Dell which was once a supply chain icon has transformed its supply chain from a predominant consumer to one of a business to business focus. The addition of the complexity of EMC’s broad product lines will add additional challenges of channels and complexity. Rival HP remains in the process of splitting itself into two separate companies, each having to manage its own product innovation, business systems and supply chain fulfillment capabilities.
Of even greater significance is the announced takeover by AB InBev of SABMiller for a sweetened sum of $104 billion. Business media reports indicate that this proposed tie-up, representing the fourth-largest takeover in history, is sure to trigger regulatory scrutiny in multiple geographic regions, including perhaps Africa, China, the European Union and the United States. According to reporting from The Wall Street Journal, in the U.S. alone, InBev commands roughly 45 percent market share while SABMiller brands command a further 25 percent. Such scrutiny is likely to lead to the shedding of existing brands and/or facilities to other industry players as well as concerns for too much market leverage. SABMiller’s board of director’s was able to negotiate a reported $3 billion break-up fee if the proposed deal cannot be consummated. Some indicate that regulatory review can take up to a year to complete.
The other important consideration is the global beer market itself, which for the first time, is showing signs of a global decline. Growth however, remains in low-volume specialty craft beers and in emerging markets such as Africa, China and Russia.
InBev parent 3G Capital and its recent orchestration of the coming together of Heinz and Kraft Foods has already sent tremors across consumer product goods supply chains with its zeal for zero-based budgeting techniques and shedding of thousands of employees and across the board cuts in all forms of “unnecessary” expenses. However, the sheer size and scope of bringing together two global beer giants is sure to provided added challenges in rationalizing product innovation, consolidation of business systems, supply and demand fulfillment capabilities on a global scale.
At the recent APICS 2015 conference, Dr. Steven Melnyk of Michigan State University shared his insights on the topic of supply chain performance in a superior presentation. One statement that hit the mark for this analyst was that: “innovation requires slack time, time for failure and experimentation and time for timely response to market opportunities.” Dr. Melnyk further opined: “slack time dies with a lean process.”
This is the current challenge surrounding high tech, consumer product goods along with food and beverage supply chains and the stakes have escalated even more with this week’s mega-acquisitions. While companies continue to struggle to achieve growth in maturing or emerging markets, they turn to value chains for needed innovation and/or cost savings opportunities. Maturing markets require added product and process innovation and/or forced consolidation for pricing and channel distribution leverage.
Acquisitions of the dizzying scope announced in the last few days leads to months of organizational disruption and changing management strategies. Many of such past mega acquisitions have admittedly mixed results as to overall long-term success.
The open question is whether such acquisitions are likely toxic for required needs for product, process and supply chain focused innovation and capability efforts. We have our views, but we are more curious as to our readership views of this dilemma.
Chime-in and express your insights, especially if you reside in the affected industries surrounding this new wave of mega-acquisitions.