BOSTON, October 4, 2012—Acquisitions are common in the consumer goods industry, yet too many deals fall short in realizing the expected gains. That’s often because acquirers fail to set priorities around the main value drivers of the deal. A new report by The Boston Consulting Group (BCG) suggests that focusing on the most likely drivers of value—with both advance preparation and a willingness to learn after the closing—can maximize the gains. The report, PMI for Consumer Goods: Finding the Opportunities, is being released today.
“Integration teams have to maintain a balancing act,” said Daniel Friedman, a senior partner in BCG’s Los Angeles office and a coauthor of the report. “Extensive preparation and planning are essential to gather the information necessary for moving quickly and decisively. Yet teams also need to be open to what they discover as the process moves along.” The uncertainty around acquisitions, said the authors, is a big reason why it’s essential to focus managerial attention on the areas with the greatest opportunity for gains.
Four Areas of Opportunity
The report lays out the four areas where value drivers can be found. Reducing the costs of goods is often the biggest opportunity in consumer goods deals. Here the challenge is to think big—but not to get so caught up in plans as to ignore what the acquired company might do better than you do. One durable-goods manufacturer, for example, was shocked to learn that the much smaller company it was buying actually got lower prices from suppliers for some items.
Reducing overhead costs might seem relatively straightforward when the acquirer is turning two companies into one. Yet one fast-moving-packaged-goods company went beyond the obvious when it worked aggressively to reduce working capital. By using its new scale as leverage, it was able to reduce days-sales-outstanding significantly.
Bringing together two marketing organizations can lead to revenue growth as well as cost savings. A worldwide liquor distributor boosted sales by connecting the marketers for its newly acquired brand closely to its far-flung field operations.
As for managing the sales forces, acquirers need to proceed carefully lest they alienate retailers or their own salespeople. The key is to explain the benefits of the deal for everyone. A large food company accomplished this when it bought an adjacent product line in a category requiring a specialized distribution network. By combining deliveries, it achieved scale economies that not only reduced costs but also stepped up the company’s ability to sell.
The Balancing Act
“Diligent planning combined with openness to learning is important not just for discovering unexpected gains,” added Jeff Gell, a senior partner in BCG’s Chicago office and a coauthor of the report. “It will also make you more sensitive to the talented people coming onboard. You’ll get more out of them—and they’ll be less likely to leave out of frustration.” The result is an organization that performs at a higher level than it did before the acquisition.
To download a copy of the report, please go to www.bcgperspectives.com. To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or firstname.lastname@example.org.