KPMG Leader Offers Analysis of How to Deliver Value Once the Deal is Done
The wave of merger and acquisition deals among major food players has crested. Now comes the hard work of integration to assure that these unions deliver on the promise to produce more profitable and viable companies. According to Alice Richter, national partner-in-charge of KPMG LLP’s food and beverage practice, “There is a formula for succeeding at integrating two companies but time and time again the formula takes a back seat in terms of other company priorities.”
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The following Q &A with commentary from Alice Richter, offers an analysis of business opportunities and issues in the food industry in this post-merger environment. Richter has 26 years of experience in the United States and Europe serving food processors, agribusinesses and retailers.
Q: At what pace will we see mergers in the next year?
Richter comment: “The rash of M&A deals in the food and beverage industry over the past 18 months now puts the largest players in full post-integration phase. Executive management teams must now be focused on managing the integration of the two companies to result in a better, stronger, hybrid.”
Q: What were the factors that sparked the merger frenzy in the first place?
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By GlobalDataRichter comment: “The pressure to increase shareholder value. In an industry growing at only 1 to 2 percent per year, organic growth was too slow and food companies were forced to rethink their business strategies and look outside. It”s also becoming clear that companies with a presence on the global landscape are better able to deliver value to their shareholders through better competitive positioning, more cost-effective distribution, procurement and access to markets. These are some of the reasons that management teams look beyond their borders.”
Q: How successful is post-merger integration overall?
Richter comment: “KPMG has found that 80 percent of mergers historically do not deliver the value that was anticipated. When you combine two companies, the focus should be on maintaining control of the current two businesses, control of the integration at large, maintaining customer satisfaction and securing the financial benefits. Synergy opportunities should be planned for in a timely fashion, but not at the expense of the customer. Once signatures are on the dotted line, CEOs must move quickly to implement the proper integration plan”.
Q: What do you think is the biggest misstep companies make once they’ve merged?
Richter comment:“Management teams lose sight of the customer. The customer is why we are all in business. Mergers fall apart when the company focuses internally at the expense of the customer. Everything should be set up to maintain the customer base, maintaining revenues, timely delivery of products or services. Managing the customer’s expectations is critical. I call it “one face to the customer”. The ability to buy, take an order, ship an order bill an order and collect. All functional departments must be aligned in order to make this happen.”
Q: The past two years have been witness to multiple mergers among the big food companies, what happens now?
Richter comment: We are now going to see a tremendous amount of activity regarding divestitures and spin-offs and this relates directly to post-merger success – just how a company sheds the businesses it deems as
non-core. It’s all part of the organic process of a company seeking its focus. We’ve already seen the beginning of the sell-off of non-strategic businesses such as Unilever selling the Bestfoods Baking Group; General Mills selling Pillsbury’s Green Giant business and the Hagan Daaz brand. What one company ultimately decides to sell will catch the eye of a buyer — who’s looking to grow by strategic acquisitions. It’s not that these are necessarily weak businesses or brands, it’s just that they are not needed in the new configuration. The market is calling for focus.”
Q: We’ve started to see some creative partnering from food manufacturers, such as Procter & Gamble and Coca-Cola, will this continue as well?
Richter comment: Creative partnering will increasingly be seen as a key business strategy. There are already numerous efforts underfoot to draw retailers and manufacturers closer together in order to drive efficiency. But we are now at the front end of two waves of partnerships — one that supports product development, the other focusing on product promotion and distribution efficiencies. The need for product innovation will drive cross industry alliances. For example, the search for functional foods has lead to partnerships between food companies and pharmaceutical companies such as Quaker and Novartis. The second wave of partnering will focus on innovative ways to promote products such as the partnership between Procter & Gamble and AOL Time Warner and Coca-Cola and Disney. The pressure to build market share and grow the bottom line will drive innovation. Creative management teams that can achieve results through untraditional means will be successful.
Q: Is being a competitor in food and beverage any different today that it was a year ago, before this latest round of consolidation?
Richter comment: Yes. Consolidation enables food manufacturers to reap rewards when it comes to distribution and direct store delivery. There’s a host of new marketing advantages brought about by bundling powerhouse brands. However, in order to realize these benefits companies are going to have to be willing to invest in advertising and promotion. Dollars spent against the right brands will lead to long term revenue growth.
Q: Do consumers care that their brands are changing hands?
Richter comment: Yes. Companies need to assure consumers that the qualities they love about a particular brand such as off-beat packaging or a commitment to children’s health will continue. Food and beverage companies that preserve the equity of the brands in their newly acquired product portfolios will gain the most value from their merger. Smart executives know that companies own trademarks, consumers own brands.”
Q: As companies grow their market share, are they at risk of raising eyebrows at the Federal Trade Commission?
Richter comment: Yes, that’s why when companies initially present filings to the FTC they are very open about what they intend to sell. We’ve seen this in several instances. For example, regarding the new Dean/Suiza merger , the companies are expected to divest themselves of dairies in overlapping markets to win antitrust approval. Companies need to put caps on their market share if they are to satisfy regulatory concerns.
Q: What happens when a merger fails?
Richter comment: Failure to uncover issues during due diligence can cause mergers to go astray in the beginning phases. Most failures take place due to the lack of planning. Mergers take time. Failure to put steps in place to mitigate risks causes mishaps. Ultimately this causes an inability to deliver to the customer. When this happens, brands lose share, or worse, disappear. If a merger does not produce promised results it will weaken the company, reduce shareholder value, and basically put the company at a great disadvantage in the marketplace. All of a sudden that great acquisition, designed to improve market positioning, now causes market decline.
KPMG LLP is the accounting and tax firm that understands the needs of business in the global economy. We help our clients by devising results-oriented business strategies, providing insights that help them stay ahead of the competition and achieve market-leading results. KPMG LLP is the U.S. member firm of KPMG International. KPMG International’s member firms have more than 108,000 professionals, including 7,000 partners, in 159 countries. KPMG’s Web site is http://www.us.kpmg.com
