Unlocking Procurement-Driven Savings in Mergers & Acquisitions

Introduction

M&A activity in the US has faced instability, with deal values dropping by 37% from 2021 to 2022. Amid economic uncertainties, optimizing procurement processes can drive substantial value in mergers.

The Importance of Procurement in M&A

While headcount reductions and operating-model changes are common, procurement-driven savings can contribute up to 40% of a merger's total cost savings potential, according to McKinsey & Company.

Strategies for Identifying Procurement Savings

– Include Procurement Experts:    Engage specialists to enhance synergy    realization. – Establish Spend Taxonomy: Align    categories for accurate comparison    and consolidation. – Launch Value-Capture Early: Identify    savings opportunities before    finalizing the deal.

Implementing Procurement Strategies

– Price Harmonization: Align prices for savings on similar products/services.  – Leverage Combined Spend: Use aggregated spend for better supplier discounts. – Policy Alignment: Standardize policies and SLAs for maximum value. – Demand & Compliance Management: Enforce spend limits to minimize waste and budget ownership.

Spend Taxonomy for Insurance Carriers

- IT/Telecom: IT services, telecom  equipment, and hosting services. - Claims & LAE: Claims adjusting, fraud  investigation, medical bill review. - General & Professional Services:  Consulting, marketing, temporary labor. - IT/Telecom: IT services, telecom  equipment, hosting services, and energy.

Driving Early Value Creation

Companies can initiate policy changes and supplier negotiations before the merger is finalized. Implementing a clean team with expertise ensures effective execution while maintaining confidentiality.

Conclusion

Effective procurement strategies can significantly enhance cost synergies during M&A. By applying these methods, companies can start realizing bottom-line benefits from Day 1 of the newly merged entity.

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