Procurement - the process of leveraging deep data analytics and a disciplined strategic sourcing approach to optimize the purchase of goods and services - is often an area of under-investment during the first steps of the M&A process. When two companies merge or come together through acquisition, optimizing procurement synergies can be one of the most important strategic levers for driving rapid and long-term Ebitda improvement.
Typically, a merger or acquisition will increase the combined companies' volumes, and therefore leverage, for common expenditure areas. Even two companies in different industries will have similar indirect expenditures, such as spending on selling, and on general and administrative areas common to most companies, such as technology, office products and temporary labor. Even if both companies currently have world-class pricing and contracts, a material increase in volumes will typically drive significant savings opportunities. In some cases, the combined volume will elevate the new entity into a "national account" or other higher status with the supply base, which often opens the door to more aggressive pricing and better service.