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Maximize the Full Potential of 2015’s $100B M&A Activity

We have all read the dramatic semiconductor merger headlines in 2015, and each one seems to bring a new level of surprise, whether because of the company names involved or the mind-boggling dollar amounts. These mergers span the entire industry, affecting major fabless players, like Avago and Broadcom, and equipment suppliers, like Lam Research and KLA-Tencor.

 

Despite the new forecasts and market indicators predicting this merger and acquisition (M&A) activity, these changes can be a bit unsettling. The impact of the changes is significant and industry experts can only speculate at the the long-term, or even some of the immediate implications, resulting from these mergers and acquisitions. For merging companies in the manufacturing industry, it is clear that a timely, successful outcome is predicated on a quick, accurate, and consolidated assessment of the supply chain to optimize production and minimize disruption.

From our position within the semiconductor manufacturing space, we see both benefits and challenges with this evolving world order. In many cases, the first benefit to these newly consolidated operations is increased revenue and market segment share due to a larger portfolio of products to sell and customer base expansion, which hopefully offsets the constant downward pressure on product ASPs. Not surprisingly, another benefit is cost savings. Once past the expected consolidation pains, the increased sales opportunities will convert into top-line revenue increases with corresponding reductions in general and administrative (G&A) expenses. This has a predictably positive impact on market-driven metrics such as EPS, stock price and company value. 

These benefits are clear, but they need to be successfully capitalized upon by the newly consolidated entity in order to be realized. Fortunately, most acquiring companies are large, well-run and profitable organizations. This may or may not be the case with the acquired companies. Regardless, the challenge to quickly and effectively capitalize on the revenue opportunities resulting from the M&A is significant, and access to accurate and comprehensive manufacturing information – across both companies – is essential.  A major source of  cost-reduction efficiency is in supply chain optimization. Afterall, it is in the complex global supply chains of the two previously disparate companies where costly functional duplications occur and revenue-generating products are manufactured.

For short and long term success, the merged companies need to have a single, consolidated view of their entire supply chain. With complete visibility into both supply chains, the acquiring company can have rapid access to operations data sourced from the newly acquired business, and will be better positionioned to make timely and informed decisions. An enterprise-wide approach can deliver the operational transparency that will enable a rapid standardization of data and metrics to consolidate measurements and KPI methodologies- an essential step to objectively comparing operations across existing and acquired business units.

Top analysts believe that 2015’s $100B M&A activity is just the appetizer for the consolidation activity in the coming few years, and the stakes are high to achieve successful results.  But, in order for companies to maximize the full potential of their acquisitions, they need solutions and processes in place to be able to quickly and accurately provide full visibility into what is going on in the newly-acquired manufacturing operations, enabling a common operational language throughout and rapidly establishing manufacturing processes, procedures and controls for those purchased businesses.

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