3 minute read 9 Aug 2019
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How to integrate a smaller consumer acquisition and keep its brand uniqueness

Authors

Jeff Wray

EY Global Consumer Transactions Leader

Passionate leader focusing on large scale opportunities in retail and consumer products. Fascinated about how products get to market. Excited about the breadth and depth of knowledge within EY.

Gregory Stemler

EY Global Client Service Partner

Senior M&A leader in consumer products with a focus in food. Passionate about health, wellness, nutrition, fitness, child welfare and family. On a mission to eliminate food deserts. Father.

Brian Salsberg

EY Global Buy and Integrate Leader

Passionate acquisition and merger integration leader and aficionado of all things deal-related. Global citizen. World traveler. Husband. Father of two.

3 minute read 9 Aug 2019

Transformative consumer deals that are focused on allowing a smaller brand asset to grow require a different M&A integration plan.

The appetite for M&A deals in the consumer products and retail (CPR) sector is growing as firms race to counter cross-sector threats and revitalize tired portfolios with fast-growing niche brands. But rapid shifts in everything from technology to talent and consumer taste mean the old consumer packaged goods model is no longer fit for serving the future consumer.

Companies need to develop different M&A integration strategies, depending on whether the deal is predicated on growing the acquired brand or reaping cost synergies by putting a sizeable business into their organization.

Different operating models need distinct M&A integration plans

Large acquisitions tend to generate cost synergies because they can get pulled into the buyer’s operating model quickly and in a manner that eliminates significant duplication. Smaller acquisitions of growing brands can happen for reasons that don’t necessarily focus on cost synergies. Two deals involving the same large consumer goods company can illustrate the point:

  • In an acquisition of a majority stake in a startup with a peer-to-peer social media model, the acquirer let the founders keep a minority stake and kept them in place to run the company. At the same time, the buyer said it planned to employ its R&D facilities and its supply chain capabilities to help grow the business.
  • In a more transformative deal, the company merged its business with a large portfolio of brands. The synergies there were more focused on costs, cutting overlap, distribution rationalization and margin improvement.

Communicate for talent retention and business continuity

Understand how the deal effects employees at both companies, then choose a communication strategy that fits the deal:

  • Larger deals can cause uncertainty for employees of both companies — they can be worried about how the deal will affect them and whether they will continue to be part of the larger company. Communicating the integration plan to all employees and then executing quickly can help make things clearer.
  • When a smaller company is purchased, the uncertainty falls almost completely on the employees of the target company. The buyer needs to be clear that the acquired asset will stand alone (if it will) and that sales incentives and performance metrics will remain the same to help alleviate those concerns and retain talent.

Revenue synergies, cost synergies or both?

Cost synergies achieved through the reduction or elimination of duplicated costs vary across CPR subsectors. Recent EY analysis of precedent transactions shows that the median cost synergy as a percentage of target revenue in the consumer subsector is 5%-6%, while retail produces median benefits of 3%.

Revenue synergies instead could be the deal driver:

  • When integrating a larger deal built on cost synergies, arduously tracking synergies against a well-defined road map and issuing weekly updates to make sure the integration remains on pace to deliver the promised value is essential.
  • That same rigorous measurement and communication could crush a smaller acquisition. Find relevant drivers, such as revenue growth or new customers, to provide some measurement and accountability, but do so with sensitivity to the target’s culture.
  • Revenue synergies could be the deal driver, even in larger deals. CPR companies have driven out costs for years, but many struggle for growth. Look to the top-line as the key synergy. Can you expand distribution without harming the acquired business? Can you bring the product to new geographies? Cross-selling new products to new customers and pricing power are two examples of revenue synergies.

Value creation comes from tailoring an integration plan to the specific deal. Is the goal cost reduction or enabling the burgeoning growth of a newer business? The M&A integration playbook used in the large deals that produce major synergies could stifle the growth of a smaller addition. Having different playbooks for large and small CPR deals could be the key to realizing the biggest benefits from any type of deal.

Summary

As consumer products and retail companies bring in fast-growing, often smaller companies, they need to become more nimble in how they approach integration. In order to get the most growth, they need to have different M&A integration playbooks, based on different acquisition goals.

About this article

Authors

Jeff Wray

EY Global Consumer Transactions Leader

Passionate leader focusing on large scale opportunities in retail and consumer products. Fascinated about how products get to market. Excited about the breadth and depth of knowledge within EY.

Gregory Stemler

EY Global Client Service Partner

Senior M&A leader in consumer products with a focus in food. Passionate about health, wellness, nutrition, fitness, child welfare and family. On a mission to eliminate food deserts. Father.

Brian Salsberg

EY Global Buy and Integrate Leader

Passionate acquisition and merger integration leader and aficionado of all things deal-related. Global citizen. World traveler. Husband. Father of two.