Aerospace and defense: M&A activity is just taking off for 2020. What's the flight plan?

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M&A activity is just taking off for 2020. What's the flight plan?

If anyone in the aerospace and defense (A&D) industry thought they were going to get a break from mergers and acquisitions (M&A) activity after a busy 2019, it doesn’t seem that will be the case. Deloitte observes in their 2020 global A&D industry outlook, “M&A activity has been strong since 2015 and is expected to be shaped further by growth drivers in areas such as C5ISR (Command, Control, Communications, Computers, Combat Systems, Intelligence, Surveillance, and Reconnaissance), commercial aerospace MRO [maintenance, repair, overhaul], unmanned and autonomous vehicles, hypersonics, and the need to achieve scale.”

Pressures in the A&D industry continue to mount, including shifting demands. In its 2020 outlook, Deloitte is seeing a 3 to 4 percent growth on the defense side and a recovery of commercial orders after a decline in 2019. Cost pressures, regulatory controls and engineering changes are just part of the list that make everyday life in this industry a head scratcher.

Not everyone is going to survive. We’ve already seen some casualties in 2020 starting with Bombardier getting out of the commercial aviation business in an effort to curb their mounting debt. Bombardier announced it would sell its remaining stake in the A220 program, formerly known as the C series, to Airbus.

Smaller companies that have difficulty keeping pace with increased financial pressures may be prime targets for larger companies looking to gain additional revenues, access new technologies and seize opportunities for growth and scale.

2019 saw the merger of two of the biggest A&D players, Raytheon and United Technologies, and this was after United Technologies acquired Rockwell Collins in 2018. We may not see that size of A&D merger again but the volume of activity is likely to continue. What other industry pain point has its own conference? Check out Aviation Week’s A&D Mergers and Acquisitions Conference coming up later this year. That’s one solid proof point M&A activity is not going away.

Lessons from other industries

Some have described M&A activity as a shaky marriage or an uncomfortable family reunion, the one where that uncle without a filter shows up. Gerry Hanrahan, Senior Director of Supply Chain Processes and Technology for Extreme Networks, described the M&A experience as “changing the tires on a race car while it’s still going around the tracks.” In 2013, Extreme Networks was the 13th largest company in the software-driven network solutions market. Just a few years later, it jumped to the number-three position after a series of mergers and acquisitions, going from a $500 million company and doubling to a $1 billion company with more than 3,000 employees and over 30,000 customers.

High-tech giants like Apple -- as well as players like Extreme Networks -- have been leaders in supply chain with other industries, including A&D, taking lessons from their high-tech counterparts. Regardless of industry, M&A activities introduce a common set of challenges. Companies are forced to incorporate organizations that come with their own systems, processes and cultures. For those in supply chain planning, it’s even more difficult because that’s where decisions are made about demand, supply, inventory and capacities. Looking at the supply chain through different lenses can cause major hits to delivery, inventories and margin among other key performance metrics.

As noted by Mr. Hanrahan, Extreme Networks “had no singular instance of truth across the supply chain.” This is the challenge for any M&A event. Manual workarounds to fill process gaps will not scale in the expanding supply chain planning landscape.

Here are a few must-haves for your M&A “flight plan.”

1. Integrate new data quickly

The M&A strategy is in play to drive growth, expand the company and, in particular in the A&D industry, take advantage of additional research and development opportunities. To leverage new assets and see the payoff, companies need to integrate all the latest new data from the acquired company as fast as they can. Unfortunately you’re looking at a number of disparate data sources, everything from enterprise resource planning (ERP) systems to legacy systems and Excel spreadsheets.

The best case scenario is that your supply chain planning platform can pull data from multiple sources, including any number of ERP systems. This saves the hassle of having to reconcile multiple systems and spreadsheets. The platform must also be able to model the planning behavior of the disparate systems, which leads us to the second requirement for profitable M&A activity.

2. Streamline global processes

Many environments have an ERP system with bolt-on modules or a host of Excel spreadsheets for data analysis. Functions are siloed. The challenge for IT groups is the integration between modules as well as the integration between the company’s separate ERP systems. Even if you can get to one ERP system, there is still the challenge of merging demand, supply, and inventory, and achieving a single version of the truth for reporting and scenario management.

In Extreme Network’s case, they were able to bring all their data onto a single planning platform. Since they could also model all planning behavior, they could streamline and standardize processes by making the same information available to all supply chain planning teams regardless of their location. Streamlining processes adds a great deal of value, in particular, it significantly reduces the time to plan and respond to change. It also facilitates an easier transition for both parties of the M&A. That leads us to the third critical requirement for successful M&A transitions.

3. Make learning and collaboration easy

There is much to consider pre- and post-M&A. Everything from understanding risk, tackling integration issues, investigating tax implications, and accounting for new assets and inventories just to name a few. However, the merging of two cultures could ultimately be the highest mountain to climb during a merger. A high level of trust needs to be established to ease the cultural differences, drive adoption of new and expanded processes and embrace change. This starts with leadership and a joint vision. But for the supply chain planning community, having the capabilities already mentioned, quickly integrating data and streamlining processes on one platform, certainly goes a long way to provide the level of trust required for a smooth transition.

One place for data, processes and people facilitates the ability to document and access workflows and best practices. It makes sharing and learning new processes easy. In this new environment, not everyone will know who to include during a planning or resolution discussion. Knowing who is impacted as well as what is impacted lets you invite the right people in for quick decision support and alerts users of issues that need immediate attention. Most importantly, it establishes a significant level of trust knowing that all participants, existing and new, are all looking at the same plan.

Get your M&A activity off the ground

A lack of cross-functional collaboration, global visibility and an inability to coordinate and synchronize your supply chain processes will only cause frustration which will be magnified during a merger. On top of the frustration you’ll be missing out on quickly getting the value the merger has to offer. As part of the M&A planning process, having your flight plan in place will ensure a smooth transition and quick time to value. It gets down to data, processes and people.

Has your company been through an M&A? If so, we’d like to hear about your experience. In the meantime, don’t forget to check out Extreme Network’s experience with M&A and how they thrived during turbulent times.

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