Navigating the Operational Side of Mergers and Acquisitions

[00:00:05.360] Hi, it’s the end of the week.

[00:00:06.870] It is Friday. We’ve made it.

[00:00:08.790] We’ve made it.

[00:00:10.150] And we’ve got a very exciting topic that we’re going to cover today.

[00:00:16.320] Inspired by that…

[00:00:17.880] Let me show you what it is. Indeed.

[00:00:19.040] Everyone always…

[00:00:19.830] We’re inspired by this Forbes article, which says, Navigating the Upswing.

[00:00:29.320] I mean, I’m I’m actually changing.

[00:00:32.350] You’re paraphrasing.

[00:00:33.460] Navigating the upswing in mergers and acquisitions from 2024.

[00:00:38.000] And it’s an interesting thing.

[00:00:41.590] In our world, mergers…

[00:00:44.130] I don’t know what a merger means.

[00:00:47.210] Mostly it’s a company buying another company, which to me is an acquisition.

[00:00:51.290] Can you imagine?

[00:00:52.430] I’m sure people might describe some things as mergers, but almost all the time

[00:00:59.920] it’s a company buying another company.

[00:01:01.470] You got to keep the peace, though.

[00:01:04.350] We’re merging to become one.

[00:01:06.010] We’re merging to become one.

[00:01:07.440] And this is something that I find really an interesting topic

[00:01:12.370] that’s great to talk about with you.

[00:01:14.230] You have in your much shorter career than mine, but still quite long career,

[00:01:20.210] have seen a lot of project work develop out of an acquisition.

[00:01:24.830] Yes.

[00:01:26.490] And I’m going to set the stage and then we’ll talk.

[00:01:29.440] Okay.

[00:01:30.210] So if we picture this, if you are a lawyer,

[00:01:37.840] or accountant, or you’re in finance, or you’re a banker,

[00:01:41.880] or whatever, a lot of times you think of all the heavy

[00:01:46.270] lifting of an acquisition coming before the contract is signed

[00:01:51.350] and the acquisition happens.

[00:01:53.130] And I don’t blame them.

[00:01:54.320] That’s where all their work is.

[00:01:55.810] And it’s tedious and there’s exacting language, and then there’s all

[00:02:00.310] these complicated treasury merging and other items of uniting two companies.

[00:02:10.410] But actually, from an operational perspective, all the hard work

[00:02:14.470] happens after the two companies have become a single entity.

[00:02:19.830] That’s when the fun begins.

[00:02:21.330] The fun begins because you’ve got these two separately functioning,

[00:02:26.640] different culture, different assets, different infrastructure, different

[00:02:30.290] technology, different everything.

[00:02:32.760] And the premise, very often, of the benefit of the acquisition

[00:02:40.370] or the merger is an efficiency that comes from becoming a single entity.

[00:02:45.970] But becoming a single entity ain’t no picnic, right?

[00:02:50.280] Indeed.

[00:02:51.170] So let’s just talk about what some of the major components are that you need

[00:02:58.640] to wrestle with When you find out, you wake up one morning, you picture the…

[00:03:03.890] I mean, wake up, they probably know, but the VP or COO or VP of operations

[00:03:08.370] wakes up and finds out they now are in charge of two companies, not one.

[00:03:13.680] Let’s go. Okay.

[00:03:15.070] Well, the first element that comes to mind, I mean, I wrote a blog a few

[00:03:21.750] weeks back for Network Studies, right?

[00:03:23.950] And that blog- Very popular blog.

[00:03:25.690] I do believe it had good stats.

[00:03:27.560] Yeah, but if you haven’t, you should go click on it.

[00:03:29.750] Click regardless.

[00:03:30.840] And in that- Wait, when did they say?

[00:03:32.510] Like, comment, follow.

[00:03:34.610] Subscribe, I think is the- Okay, subscribe.

[00:03:37.320] Thank you.

[00:03:38.600] But in that, it spoke about what are some of the triggers

[00:03:40.800] for doing a network study?

[00:03:42.050] Of course, there’s growth and getting into a new region.

[00:03:45.590] And then one of the others, primary ones, which I’ve been dealing with,

[00:03:49.310] is mergers and acquisitions.

[00:03:51.330] Help us first define what is a network study?

[00:03:56.170] I know everybody or lots of people know what it is,

[00:03:58.950] but let’s just put that on the table.

[00:04:00.930] We do have, just to remind you, an enormous audience of technology people,

[00:04:08.890] CIOs and others, and they may not know as casually as you the term network study.

[00:04:15.250] So tell me what that is.

[00:04:17.440] Well, good point, because when I’m talking about network, I’m not

[00:04:19.450] talking about the- An IT network. No, very much not that.

[00:04:22.150] No, you’re talking about- I’m talking about the building network

[00:04:25.570] or the distribution point network for a film and point network.

[00:04:28.780] It doesn’t have to be your It could be somebody else’s.

[00:04:31.860] But ultimately, the network study helps you just decide where these buildings

[00:04:37.600] should be, who they should distribute to, how they should operate, how big

[00:04:41.070] they should be, and it sets the foundation for the network.

[00:04:44.000] Right.

[00:04:44.530] And so So when we end up in M&A world, often, sometimes it can be, okay,

[00:04:50.340] a very small acquisition, no problem.

[00:04:52.510] I’m actually going to just eat a single or a couple of sites into my larger network.

[00:04:58.090] And other times, you you ended up with two significant networks that then

[00:05:05.100] have to figure out how they go together.

[00:05:08.160] And so there’s one famous acquisition that happened in 2018

[00:05:13.360] with large beverage company And until last year, when I was chatting with those

[00:05:18.770] folks, it’s still fairly two independent networks because of the challenges

[00:05:23.420] that happen about physically, what do they want to do?

[00:05:27.210] How do they want to integrate two businesses together?

[00:05:29.920] So that’s the first thing when we’re talking about making

[00:05:33.250] two businesses or two operations into one, you have physical assets that

[00:05:38.470] you have to decide, what do I combine?

[00:05:42.400] You also have elements such as you own certain buildings So you’re going

[00:05:45.680] to lease certain buildings, there’s termination dates to them.

[00:05:48.330] And so figuring out how all of those merge into one is highly complex.

[00:05:52.290] And oftentimes there’s not one answer, right?

[00:05:54.910] There’s a whole proliferation of different approaches that folks can do.

[00:05:58.480] You just said a whole bunch of things there that are interesting, okay?

[00:06:01.560] At least. Yes.

[00:06:03.960] So let’s start with this.

[00:06:07.570] We’re going to talk about Company A, Company B,

[00:06:11.570] they merge to become the A/B Company.

[00:06:14.650] Very exciting.

[00:06:16.330] The stock market loves it or whoever.

[00:06:18.730] And Company A has six warehouses across the entire geography

[00:06:27.890] of the United States.

[00:06:29.410] Company may or may not have a national network.

[00:06:33.890] Maybe they’re strong in one region or in a couple of regions.

[00:06:38.200] So the first thing you say is, oh, let’s just put them all together.

[00:06:44.410] First hurdle, as you just said, not so easy, not so fast.

[00:06:49.730] What if they’re all leased buildings?

[00:06:52.770] So now I have a whole, I think in my example, we’ve come to 10 facilities

[00:06:57.470] that are all under lease, and the leasing Leases expire in different times.

[00:07:03.360] One could be just signed last year and you have nine more years on the lease, and

[00:07:08.950] one could be only coming up in two years.

[00:07:12.650] And so the first complication we have to think about in terms

[00:07:17.420] of the speed with which you can start getting efficiency is, well,

[00:07:22.590] the lease is either allow it or don’t.

[00:07:26.570] Or lease or free fail contract. Lease 3PL contract.

[00:07:30.150] Lease, 3PL contract.

[00:07:31.330] Even if you say to your point, you said you may own the buildings.

[00:07:36.040] And oftentimes it’s a mix of the two.

[00:07:39.170] Because one company B had one certain philosophy towards assets

[00:07:44.320] and the other company A had a very different philosophy towards assets.

[00:07:47.710] But just because you own the building doesn’t mean you can get rid

[00:07:53.320] of it that easily.

[00:07:54.320] It could be in a bad market, it could be in a bad condition, it could

[00:07:57.250] have no value, or it may, back to what something, pull you towards a solution

[00:08:03.630] that leverages the owned building.

[00:08:07.010] The other thing I think is interesting about what you’re saying

[00:08:10.230] is geography matters.

[00:08:13.410] So obviously the hotspots will be where geographies overlap between the networks.

[00:08:19.640] And it could be sometimes the default is if Company A is the big cheese

[00:08:27.790] and Company B is the little cheese, but But the little cheese

[00:08:31.860] may have more strategically valuable locations in the network.

[00:08:37.610] But that could be annoying because a site that we say this is the perfect location

[00:08:44.870] solution, but actually the expansion ability of that site is

[00:08:50.080] very limited and we can’t make use of it.

[00:08:52.690] And that’s all the things you wrap into when you’re thinking about there’s not

[00:08:58.170] really one perfect solution There’s a reality that you accept and you’re

[00:09:04.030] making best with the reality you’ve got.

[00:09:07.690] And so you cannot evolve into a perfect situation overnight, right?

[00:09:12.580] Definitely not. Right.

[00:09:15.130] Do you want to move to the next chunk?

[00:09:18.320] I mean, I could go on if you want to, but if you…

[00:09:20.480] Yeah, let’s talk… No, we have to be careful.

[00:09:23.320] This goes by so quickly, and it’s better to touch all the big

[00:09:27.290] points, and then we can go back.

[00:09:29.040] Okay, because there’s What is the other chunk we can get?

[00:09:31.010] No, no, no, throw it out. What is the other chunk?

[00:09:33.160] Well, the next one I was going to talk about was the operations

[00:09:35.120] within this building. So we talk about the buildings.

[00:09:37.040] Thank you.

[00:09:37.520] Actually, I do want to- The equipment, right?

[00:09:39.230] And how those buildings have been set up.

[00:09:41.470] I mean, the merger, the acquisition could happen between…

[00:09:47.010] There’s typically going to be some level of cohesion between the two,

[00:09:52.410] but one could be a highly D2C, one could be more of a B2B business.

[00:09:56.480] I think that’s a really important point. Yes.

[00:09:58.750] It sounds It’s obvious, and just so everyone is clear in everyone’s mind,

[00:10:04.730] if I am 70 % wholesale, and I just bought a company that is 70 % retail,

[00:10:13.440] meaning they own their own stores.

[00:10:15.050] And I actually want those stores, just for example.

[00:10:19.680] So it’s not even as stark a contrast as B2C and B2B.

[00:10:25.650] It’s like I do almost all my volumes wholesale.

[00:10:28.910] I rarely break a pallet, just to be ridiculous.

[00:10:31.700] I rarely break a pallet in my warehouse.

[00:10:35.050] And then the retailer, Company B, is like, well, we’ve never shipped

[00:10:41.190] a full pallet out in our entire lives.

[00:10:43.200] The two operations are so fundamentally different that

[00:10:48.270] the merger of the two is not obvious.

[00:10:50.440] In fact, it’s probably the case picking person who would have a better time

[00:10:55.060] adopting, absorbing the pallet guys- Yeah, because they have And vice versa,

[00:11:00.750] because it would be a little bit more…

[00:11:03.080] The change management would be much lower than if you had a large pallet in,

[00:11:08.600] pallet out operation suddenly doing case picking.

[00:11:10.630] Absolutely.

[00:11:11.690] It’s actually funny.

[00:11:13.190] We have quite a number of 3PL clients.

[00:11:15.710] And there has been, at least certainly over my 25 years

[00:11:21.050] of work, a definite shift of clients wanting case or less than case

[00:11:28.750] picking in in a 3PL environment.

[00:11:31.070] And the 3PL guys are always the same.

[00:11:33.350] They’re like, oh, so expensive.

[00:11:35.110] It’s so labor-intensive.

[00:11:37.440] It’s like, yeah, but that’s what it is.

[00:11:39.360] That’s what they’re getting it to you.

[00:11:41.070] What are you complaining about?

[00:11:43.310] Just set up a good pricing table and get the job done.

[00:11:46.630] But anyway. All right.

[00:11:48.630] So I’m glad you brought that point up.

[00:11:51.530] Well, then I guess the next one, I would take it to the application part,

[00:11:56.870] digital side of the conversation about So software portfolios.

[00:12:02.080] So very oftentimes you’ve got companies that are coming together.

[00:12:06.580] They’re operating different ERPs and a whole slew

[00:12:10.270] of different operations software.

[00:12:12.190] And again, it’s often not an overnight switch.

[00:12:16.120] You’re bringing these together and you’re having to make a decision of,

[00:12:19.350] one, do we put on the same platform?

[00:12:22.160] We’ll talk, I think, about data in a little bit, but one, do we

[00:12:25.070] put on the same platform?

[00:12:26.390] Is it one of the platforms we already have?

[00:12:29.610] And And then beyond that, they are going to have to go through

[00:12:34.950] that transition, which is going to take oftentimes a fairly large lift.

[00:12:40.050] Yeah, I think it sounds to the layperson.

[00:12:45.230] It may seem obvious that you would want Company A and Company B to operate

[00:12:50.750] on the same technology platform.

[00:12:54.440] But that is not an obvious thing.

[00:12:58.830] I think best practice or long term, yes, we do.

[00:13:02.160] We would want the entire company be on a single platform.

[00:13:04.690] But let’s imagine there are all sorts of ways that’s complicated.

[00:13:08.530] This could be…

[00:13:10.170] Well, first, essentially, if I chose, let’s pretend Company A Company B,

[00:13:16.110] Company B is smaller, is what we’re doing in our little fantasy example.

[00:13:20.280] So Company A is doing the acquisitions, says, Well, you’re going

[00:13:23.430] to migrate to our platform.

[00:13:25.850] Now, imagine if Company A’s platform is a little bit archaic, a little bit

[00:13:31.830] old, that’s terrifying, right?

[00:13:35.130] So then it’s going to trigger, well, is that the right decision

[00:13:38.430] or should we both be migrating?

[00:13:40.810] I’m either doing a massive re-implementation of the system,

[00:13:45.810] of Company B system, or I’m going to look at it and go, well,

[00:13:51.510] actually, no, I’m going to do a massive re-implementation to Company B system

[00:13:55.850] because the technology is more modern and has longer legs, let’s say.

[00:14:01.810] Or you’re replacing it in both entirely with a whole new system.

[00:14:06.850] That is not an easy thing, right?

[00:14:09.430] It almost makes the buildings problem look simple.

[00:14:13.850] Yeah, I would have to agree.

[00:14:16.330] And so, okay, and then sometimes, well, very often we’ve

[00:14:25.270] seen companies actually not rush.

[00:14:28.570] Well, I think that’s part of it as well, that there’s some software that you want

[00:14:34.240] to get your financials together.

[00:14:35.710] You want to set that foundation early on.

[00:14:38.470] And then there’s other solutions, like warehouse management

[00:14:41.770] systems, picking on that.

[00:14:43.410] If you have independent sites, and the WMS is communicating with the ERP anyways,

[00:14:49.130] and there’s not too much communication between the sites, then yeah,

[00:14:52.870] the decision can often be, you know what?

[00:14:56.050] Let’s put that to the side for now.

[00:14:59.290] We will operate on multiple warehouse management systems for the foreseeable.

[00:15:04.310] The same could be said for the TMS, the YMS, whatever other acronyms

[00:15:09.630] you want to throw in there, but the ones that are more specific to singular sites

[00:15:14.030] as opposed to the entity as a whole.

[00:15:16.070] A hundred %.

[00:15:17.790] And this is back to the point you made about the operations and how

[00:15:23.410] you could easily see the two companies having very different operations.

[00:15:29.560] So just Just like they would have different material handling systems,

[00:15:32.530] different operating procedures, they would have different potential WMSs.

[00:15:36.490] They could have…

[00:15:38.770] You think about it, you could have the same WMS.

[00:15:41.730] They could both be running just to be so neutral about it.

[00:15:45.790] They could be both running Manhattan’s WMS, but they’re very different versions.

[00:15:53.850] And to a point where it’s not…

[00:15:55.810] If you’re running Manhattan in the cloud and you’re running Manhattan on premise,

[00:16:00.670] This is not a light choice to make between the two.

[00:16:04.830] And leaving them alone may be the right thing to do.

[00:16:09.320] Yeah, well, that’s- At least in the short term.

[00:16:11.040] Well, and a hugely good point, just because it has the same brand name

[00:16:13.750] on it does not mean that it’s the same one at all.

[00:16:16.280] Right.

[00:16:16.400] Just because it’s the same brand doesn’t mean it’s the same system at all.

[00:16:19.080] Yeah. Yeah.

[00:16:21.760] So is that enough? I would move on.

[00:16:25.240] I would move on. All right.

[00:16:26.150] Next.

[00:16:27.650] Well, the piece that ties into The into everything software is

[00:16:32.400] everyone’s favorite thing, which is data.

[00:16:34.170] And we’ve just spoken about how you can end up finding yourselves

[00:16:38.400] with some things that are merged in terms of your software,

[00:16:40.710] some things that are not merged.

[00:16:42.730] And a large part of the repercussions of that is going to be the quality

[00:16:49.510] of the data and your ability to combine that data in order to gather

[00:16:54.960] your insights, make your decisions.

[00:16:56.350] And that can be sometimes easy, sometimes hard.

[00:16:58.930] So even if the system stays separate, even if you kept everything

[00:17:04.550] separate, everything is separate.

[00:17:06.510] But at the highest level of the organization,

[00:17:11.010] there needs to be unified data.

[00:17:14.040] And that means at minimum, the data warehouse and then

[00:17:17.530] all the processing and reporting that comes out of the data warehouse needs

[00:17:22.070] to have data that is coherent between the two acquired or merged entities.

[00:17:30.170] And you just got to think about vendors, customers,

[00:17:36.320] bill of materials, item master data.

[00:17:40.120] Is there anything I’m forgetting? Probably.

[00:17:42.160] Probably a whole slew of things.

[00:17:43.160] Probably a million things. Yeah.

[00:17:44.730] That that all need to be harmonized in order for us to truly

[00:17:49.350] understand the business.

[00:17:52.550] Well, and to understand the business, and there’s something to be said about

[00:17:58.600] you could understand understand the business in a…

[00:18:00.890] You could go the hard route and have a very heavy external

[00:18:07.040] reporting, you tie it all together.

[00:18:08.320] So it’s one about understanding the business, but it’s another about making

[00:18:12.000] your lives a little bit easier as well.

[00:18:13.690] Are you going to set this up such that there is a referenceable data source

[00:18:17.490] that is applicable to both of them?

[00:18:20.730] Or are you going to potentially kick the can on doing that and just create an

[00:18:25.790] offshoot headache for a lot of folks and potentially discontinuities between that?

[00:18:31.310] I mean, so to me, the key thing for a lot of people to understand is on paper

[00:18:40.560] in an Excel spreadsheet now, the benefits of an acquisition

[00:18:46.950] or a merger can look enormous.

[00:18:50.600] But the reality is you’ve got to have

[00:18:55.830] a patient composure because it’s a long

[00:19:01.710] horizon before the benefits get reaped.

[00:19:05.930] Yeah, and an understanding as well that, I mean, you said it at the start of the

[00:19:10.950] podcast, when there’s a whole lot of hard work that happens to get to the deal.

[00:19:15.350] And oh, my God, there’s going to be a whole lot of work after that.

[00:19:19.440] It’s not- Years. It’s not.

[00:19:21.410] It’s a marathon.

[00:19:22.890] It’s a multi-year effort to actually make whatever the investment bankers

[00:19:30.230] told you to make that actually come to fruition, you’re in for a long haul.

[00:19:34.360] And talking about hauls, Jennifer Hall is one of the best

[00:19:41.080] in the business to help make you happy. Oh, there you go.

[00:19:43.150] The pun came up, so I had to use it. Thank you.

[00:19:45.880] I appreciate the plug.

[00:19:46.990] Have a great weekend.

[00:19:48.970] Oh, can I say one thing about our To become One?

[00:19:52.120] Yeah.

[00:19:52.770] So my first ever concert, can you guess what it was?

[00:19:55.530] To what concert?

[00:19:56.990] To become one. I don’t know.

[00:19:59.730] S Club 7. Sorry?

[00:20:01.550] S Club 7.

[00:20:02.270] I don’t know anything about what you just said.

[00:20:05.200] That’s heartbreaking. All right.

[00:20:06.430] Well, with that…

[00:20:07.730] I’m an old man.

[00:20:09.530] I mean, if you made a reference to like Duran Duran, I could relate.

[00:20:13.910] I could say, Oh, I remember that.

[00:20:16.450] How is that…

[00:20:18.470] Who’s that person I really like?

[00:20:21.690] Oh, oh, oh.

[00:20:24.600] Well, see…

[00:20:26.250] All right. Well, then let’s…

[00:20:28.770] Have a great weekend. Yeah, have a great weekend.