The 2014 issue of Perspectives On Manufacturing Industries, Oliver Wyman’s annual journal for decision makers in the machinery and plant sector, focuses on the opportunities the right M&A strategy creates for industrial and equipment manufacturers and furthermore delivers relevant insights with a strong focus on globalization along the entire industrial value chain.
PITFALLS DURING ACQUISTIONS
Industrial and equipment manufactures need to engage in M&A with the right strategy in order to successfully manage the integration of the acquired company.
The most common pitfalls during post-merger integration (PMI) are an insufficiently prepared integration process (“pre-closing”), inadequate cultural integration, and underrating the complexity of the integration process. What’s more, in many cases the PMI process is not aligned rigorously enough with transaction goals. On the one hand, this can lead to an exponential increase in both required time and costs. On the other, it increases the potential for issues important to achieving transaction goals to be neglected and fall by the wayside. Consequently, it is crucial to start PMI preparations well ahead of the closing.
1WHAT MUST COMPANIES DO TO SUCCESSFULLY ENGAGE IN M&A?
A recent Oliver Wyman analysis of leading machinery and industrial equipment manufacturers in Germany, Austria, and Switzerland found that companies that either make frequent acquisitions or no acquisitions at all have about the same total shareholder return. But, manufacturers with a low level of M&A activities are less successful than either of these groups. This seems to indicate that if companies choose to play the M&A game, they need to do so regularly to master it.
2WHAT ARE THE MAIN REASONS TO ENGAGE IN M&A?
Acquisitions can make strategic sense in many ways. Over the near term, we believe that acquisition activities in this industry will be motivated by three core reasons. First of all, mid-market positioning can be a reason to obtain or enhance a company’s access to this environment of growth. Secondly, it is essentially that manufacturers can acquire companies to round of their offerings. Lastly, another main reason can be diversification.
3HOW ARE WESTERN MANUFACTURERS HANDLING THE COMPETITION WITH EMERGING MARKET PLAYERS?
The number of acquisitions by European companies in Asia has remained more or less unchanged in recent years, but the acquisitions by Asian companies in Europe have increased by 700 percent. Therefore, 68 percent of leading machinery and industrial equipment manufacturers in our survey believe a German company in their segment will be acquired by an emerging market player in the next five years.
4WHAT ELSE ARE SUCCESS FACTORS FOR MANUFACTURERS BESIDES M&A?
Manufacturing companies must apply the principles of globalization across the entire value chain, from purchasing through operations to sales. Additionally, business success will continue to rely strongly on pulling the most important operational levers. Thus, improvements in areas such as spare parts pricing, or through a tailored product cost down approach, can have a significant bottom-line impact.