Looking Beyond: Building resilience and assessing M&A opportunities

This is the third part of a series focussed on strategy. The first and second parts covered why you need a new strategy, some of the external factors that will shape your thinking and practical considerations in remobilising your business. Now we shift our attention to how some of the previous assumptions we used to manage our supply chain are no longer relevant and how to capitalise on some of the key strategic opportunities that may be in front of you.

Build a resilient supply chain

The pandemic has highlighted the vulnerability of previous supply chain business rules. Historically, there has been a strong emphasis on minimising inventory levels, keeping suppliers at a distance and reliance on off-shoring to manage cost and improve profitability. In this current world, where disruption is constant, these views are being challenged. Supply chains can now offer a competitive advantage and allow you to manage through the uncertainty ahead. There have been long standing views that supply chain improvements can be difficult and costly. They can be, however companies should consider a range of opportunities and contingencies particularly for critical componentry or processes to build in an increased level of resilience:

  • Current state – Critically assess your current supply chain and look for opportunities to reset governance, establish clear accountabilities, reset procedural frameworks and determine primary functions to insource or outsource.
  • Technology as a tool – On top of resilience, supply chains will need speed and agility. You need to integrate demand, supply and capacity planning. Ensure you streamline supplier selection using E2E counterparty risk tools and automate key processes including logistics, transport, re-orders, payments and billings.
  • Collaborations and partnerships – Look for opportunities to collaborate with others (including competitors) to jointly leverage capability or resources, for example freight capacity.
  • Diversify to de-risk – Evaluate alternative sourcing options for all materials including the availability of suppliers, pricing, transport costs / access, volume constraints. Utilise this time to also identify realistic sales opportunities or new growth channels.

The balancing act for management teams will be in staying the course on the above whilst inevitably coming under pressure from shareholders and other stakeholders to get back to “normal” and restore profitability.

Take advantage of Strategic M&A opportunities

Strategy is often talked about in terms of bold decisions or big bets. Your competitors will likely be in a similar position and many will actively be looking at areas of opportunity around process improvements, fixed costs and adjustments to business models. All of these are warranted, however, what will set you apart? In many cases it can revolve around M&A, and if executed well, can greatly improve your chance of success.

The impact of the pandemic on certain industries has varied greatly. We have seen both ends of the spectrum, with airlines, travel and hospitality being decimated, while food and grocery and telecommunications have experienced increases in demand by between 20 percent and 100 percent. No matter how your business has been impacted, there will be opportunities, however the path ahead will vary:

  • Severely – You may need to look for ways to right-size your business or raise additional funds. Restructuring and/or divestment of underperforming or non-core assets should be considered.
  • Moderately – Strategic partnerships and collaborations are options to help navigate through the next period. Broader consolidation should also be considered.
  • Marginally – In circumstances where your business has a strong balance sheet or has had surplus cash for investment, there will be opportunity to look at acquisition of competitors or to think about vertical or horizontal integration.

None of these should be taken lightly and you need to ensure you focus on due diligence, valuation, structure and integration to ensure a successful outcome.

The final part of the series will look at optimising your capital structure to provide flexibility and optionality and the importance of strategy execution. If you missed part one and two, please refer to the links below:

Looking Beyond: How to prepare your business for post COVID-19 – Part one

Looking Beyond: External factors and remobilisation – Part two

Looking Beyond: Optimise your capital structure and execute your revised strategy – Part four

AUTHORED BY

Sean Wiles

Sean Wiles
Partner, Sydney
T: +61 2 9248 9986
E: swiles