Low oil prices set the stage for more deals in the growing upstream Mergers & Acquisitions market. Bloomberg recently told us about bargains in today’s buyer’s market, citing a 25% drop in shale company value during 2014.
Below, we see that one group of high-debt shale drillers has recently under-performed other upstream companies. These shale drillers lost an extra 1/3 in value compared to the rest of the industry, making them prime targets for acquisition. We saw just one recent example of a major acquisition in Shell's $70 billion acquisition of the BG Group.
As acquisition deals close, supply chain managers need to prepare an integration strategy.
Seize the Opportunity
History tells us that 70% to 80% of acquisitions fail to create wealth for shareholders. Whether you're buying a competitor’s reserves or buying into the upstream industry, supply chain is critical to a successful merger.
A supply chain manager must be quick to cut redundant costs, but it can be difficult to know where to make the chop. The list below shows the most common candidates for cost reductions.
To identify opportunities for post-merger savings, we recommend two initial strategies.
First, search for where the merger creates overlap in fixed costs. Accounting, IT, and other back-office services contracts will often overlap after a merger.
Second, seek out economies of scale. For example, a keen manager will need to understand how many rig and drill pipe rentals are currently in the field (post-merger), and then re-negotiate contracts to capture volume discounts.
Tackling a merger integration with a successful supply chain strategy will put your organization in a position to deliver positive news to shareholders.
Interested in learning more? Click here to contact one of our merger integration experts.