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Merger Integration for Global Technology Manufacturer

Abstract

A merger, acquisition or carve-out calls for a fresh look at a company’s pricing strategies and related processes to align pricing with the company's new organization and suite of products or services. In fact, M&A activity can be a catalyst for harmonizing or improving pricing, allowing companies to achieve significant margin uplift by improving price structure, pricing execution, customer overlap and product mix, and reducing taxes in the context of integrations and divestitures.

The Challenge

Deloitte's client had recently announced its largest acquisition – a billion-dollar purchase of a competing manufacturer. While the merger awaited Securities and Exchange Commission approval, our client realized that the target executed a markedly different pricing strategy despite having considerable customer overlap. Faced with reconciling two product portfolios, customer sets and underlying contracts, our client needed a plan and a head start on the integration to effectively manage its margin exposure from joint customers and to capitalize on cross/up-sell opportunities. Moreover, our client wondered how it would pass through long-overdue price increases to justify rising material costs and increased commoditization, which resulted in declining margins.

How We Helped

Given anti-trust regulations, Deloitte helped our client establish a clean room to facilitate inter-company analytics. Next, the joint Deloitte-client team compiled a repository of more than 1 million sales transactions with appropriate discount, return, rebate, payment and manufacturing cost data for the prior two years. We then helped our client perform a partial transactional pricing analysis of the parent, target and combined entities that entailed profitability waterfalls, velocity curves, price bands and contribution analyses. Finally, the joint team assessed comparative pricing strategies, capabilities and distributor agreements, which allowed our client to validate its preliminary hypotheses of potential risks and opportunity areas.

Solution

The project gave our client a significant head start in managing the combined product portfolio and customer base. In total, we helped our client identify approximately $30 million in potential margin exposure related to disparate distributor agreements and approximately $40 million in product overlap. We also helped our client evaluate alternatives as it developed a short list of distributors it could target to better manage margin exposure and take advantage of uplift opportunities. Finally, we helped our client understand ways to integrate the target’s pricing strategy, approaches and merchandising plans. Using our analytical framework, our client was able to immediately improve customer profitability, develop an integrated pricing strategy and draft a consolidated merchandising plan.Moreover, the framework allowed our client to arm its sales force with the information necessary to negotiate with high-priority customers.

As used in this document, ‘Deloitte’ means Deloitte LLP (and its subsidiaries). Please see  www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

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