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How Procurement can Stay Ahead during Exponential Growth Post M&A

Published on
July 16, 2023 at 2:00:00 PM PDT July 16, 2023 at 2:00:00 PM PDTth, July 16, 2023 at 2:00:00 PM PDT

When companies experience rapid growth through acquisition, it can be challenging for Procurement teams to keep up. Two such industries that have remained resilient in their M&A strategies in the aftermath the pandemic are healthcare and dental services. There are various types of healthcare organizations (HCO’s), from not-for-profit firms, government healthcare organizations (like the VA), and for-profit healthcare entities - these can all include hospitals, home-based healthcare entities, urgent care facilities and nursing homes, etc. Dental Services Organizations (DSO’s) on the other hand, are companies that acquire dental practices and take over their operations, marketing, and administration of the clinic offices (think Sonrava Heath and Heartland Dental). Typically, the for-profit HCO’s and DSO’s grow their businesses through mergers and acquisitions.

According to a Grant Thornton article, “….2022 remained an active one for M&A activity in the healthcare industry, following a record-setting year for healthcare deals in 2021. For North America, the 1,868 healthcare deals in 2022 and their associated deal value of $278.3 billion represented a decrease of 29.48% and 41.77% respectively. But 2021 was unusually active, with 2022 representing a return to more normal levels, according to PitchBook’s 2022 Annual Global M&A Report.”

The dental services industry is no different. “As the recent ADSO Summit confirmed, there continues to be far-reaching investor interest in dental [services] organizations (DSO’s) as a way to participate in the large, growing, and resilient dental sector. Patient demand has rebounded well post-pandemic, and while there are complexities to navigate in terms of staffing and personnel, the outlook for 2023 and beyond is positive, and continues to improve. The $136 billion+ dental market is growing 6%+ annually and has shown its ability to recover from pandemic-induced demand fluctuations.

The “problem” with exponential growth like this, are the struggles Procurement (and other business units like Facilities and IT) have with getting a handle on the new offices coming under their company brand, which can range from just a handful of clinics to 50-60-70+ per acquisition cycle. In an ideal world, Procurement and IT are brought in way before the ink is dry, to perform footprint analysis on what office and IT equipment (like printers, MFPs and copiers), analyze spend data and supply usage from the company being acquired, and evaluate any existing supply contracts in an effort to identify potential savings both in the short and the long term.

So just how does Procurement keep up with post-merger integration (PMI) and deliver on strategic sourcing and cost savings? When it comes to the office printer assets in use there are quick ways to reduce costs with a true supplier partner, that can help Procurement remain a driver of innovative ways to deliver value to the organization in the following ways:

Supplier Management

As companies grow through acquisition, Procurement teams face the challenge of managing a larger base of suppliers while trying to ensure compliance and operational efficiency. The first few months post-M&A are critical as it’s when the most rogue spend typically occurs by the acquired company staff while they wait to be onboarded to the new parent company’s suppliers. Say goodbye to “spend visibility” when this happens as those rogue off-contract purchases tend to simply be expensed. To keep up with these demands, Procurement teams should take a strategic approach to supplier management. This includes continually evaluating existing supplier relationships to ensure they are meeting the company’s needs, forging new partnerships with potential suppliers who can offer better deals, and utilizing technology to automate processes and increase visibility into supplier performance.


Collaboration with other departments such as IT and Facilities can also be beneficial in identifying areas for improvement and optimizing processes across business functions. Additionally, analytics tools that provide data on spend trends can help inform decisions. This collaboration can help identify areas for improvement and optimize processes by leveraging best practices across business functions. Additionally, investing in analytics tools can provide real-time data on spend trends which can be used to inform decisions.

Standardize Onboarding

Finally, having an effective onboarding process is essential for companies that are scaling quickly. Procurement teams should have standard operating procedures in place so new suppliers can be onboarded quickly and efficiently. This may include streamlining processes like document collection, setting up payment terms, or even safety protocols. Conversely, Procurement should have already worked out a quick onboarding process with their suppliers to get access to their contracts by the acquired offices within the first two weeks post-acquisition. Doing this helps reduce the amount of rogue-spend by those acquired offices.

Having an effective onboarding process will also reduce administrative strain and help to ensure compliance throughout the entire supply chain. Keeping adequate records of all onboarding activities is key for compliance reasons as well as tracking supplier performance over time and making any necessary adjustments to agreements or contracts when needed.

No End in Sight

According to VIKING M&A, “rapidly changing landscape in the healthcare [and dental] industries pose challenges for small and medium companies that need more capital to keep up with larger, better-funded companies. In addition, the continual rise in healthcare costs makes it even more difficult for companies to compete. As a result, for many, the best option is to be acquired.

Nearly 85% of high-value M&A deals in [these industries] focused on scope, evidence that widening service offerings and market share is a critical factor for buyers in 2023. (Bain & Company)”

Procurement Plays a Crucial Role in Post-Merger Success

“External spending with third parties is often the largest share of a company’s costs, representing a golden opportunity for post-integration cost savings. Procurement is responsible for the majority of the organization’s spending and thus plays a key role in contributing to cost synergies.

Rising acquisition prices and a rapidly shifting economy are putting additional pressure on PMI teams to identify cost-saving opportunities. Furthermore, external spending is often an ideal pathway for organizations to cut costs without growing pains. Other money-saving avenues, such as employee reduction, are far less attractive from an operational and reputational perspective. An effective procurement team can drive significant cost synergies to increase the probability of long-term success for the newly merged entity.

An effective post-merger integration plan requires careful planning and execution from procurement teams. Successful procurement synergy will lead to maximized cost savings, additional purchasing power, and contracts harmonized with business processes to mitigate operational and financial risks.”

M&A: A Chance to Mature Procurement

According to a recent McKinsey article from March 2023, “A merger creates an opportunity to reinvent the procurement function, turning it into an innovation engine and strategic partner to business leaders.” The first 6-12 months post M&A are ripe for opportunities for cost reduction, supplier consolidation, and pricing harmonization, and the indirect category with the highest quick-win opportunities is office supplies.

“Increased volume of shared materials makes it easier to negotiate better deals, as procured goods and services typically represent 60-80% of the company’s total costs”, said Efficio Consulting COO and co-founder Alex Klein, in an email to Supply Chain Dive. “Procurement costs are also substantial for services companies, where an estimated 30-40% of spending is related to procurement, often in areas of indirect spend like IT, marketing, logistics and office supplies. Procurement will represent a large proportion of post-integration cost savings,” Klein said.

Most M&A experts agree that post-merger integration is a very critical period, as it can literally decide whether the M&A transaction was a success or not. Having directives and buy-in for Procurement by their C-Suite is also helpful, especially if they commit their new company entity to certain cost-savings or ESG goals, for example. This is why “one of the important topics for M&A synergies is the Procurement function”, according to veteran CFO, Michael Hofer. “Companies can achieve savings of 5% or more in their annual spending if they approach it the right way. Use the power of higher volumes, improve supplier selection and relationship management, utilize economies of scale for the investment in the IT infrastructure, and find the best negotiators. You can make it work whether you have a centralized or decentralized organizational structure.”

Estimated annual synergies and actual realized annual synergies, can end up being two very different figures if PMI goes south. To guarantee a positive M&A transaction, Procurement must be involved to create early-on cost-control initiatives, working capital reductions, supply chain optimization and productivity improvement to yield margin benefits. Working capital management and efforts to cut operating costs will the company generate healthy cash flows moving forward too.