Post-Merger Period Critical For Food Industry Success

KPMG Leader Offers Analysis of How to Deliver Value Once the Deal is Done



Apr 17, 2001, 01:00 ET from KPMG LLP

    NEW YORK, April 17 /PRNewswire/ -- The wave of merger and acquisition
 deals among major food players has crested.  Now comes the hard work of
 integration to assure that these unions deliver on the promise to produce more
 profitable and viable companies. According to Alice Richter, national partner-
 in-charge of KPMG LLP's food and beverage practice, "There is a formula for
 succeeding at integrating two companies but time and time again the formula
 takes a back seat in terms of other company priorities."
     The following Q &A with commentary from Alice Richter, offers an analysis
 of business opportunities and issues in the food industry in this post-merger
 environment. Richter has 26 years of experience in the United States and
 Europe serving food processors, agribusinesses and retailers.
 
     Q:  At what pace will we see mergers in the next year?
     Richter comment:  "The rash of M&A deals in the food and beverage industry
 over the past 18 months now puts the largest players in full post-integration
 phase. Executive management teams must now be focused on managing the
 integration of the two companies to result in a better, stronger, hybrid."
 
     Q:  What were the factors that sparked the merger frenzy in the first
 place?
     Richter comment:  "The pressure to increase shareholder value. In an
 industry growing at only 1 to 2 percent per year, organic growth was too slow
 and food companies were forced to rethink their business strategies and look
 outside.   It's also becoming clear that companies with a presence on the
 global landscape are better able to deliver value to their shareholders
 through better competitive positioning, more cost-effective distribution,
 procurement and access to markets.  These are some of the reasons that
 management teams look beyond their borders."
 
     Q:  How successful is post-merger integration overall?
     Richter comment  "KPMG has found that 80 percent of mergers historically
 do not deliver the value that was anticipated.  When you combine two
 companies, the focus should be on maintaining control of the current two
 businesses, control of the integration at large, maintaining customer
 satisfaction and securing the financial benefits.  Synergy opportunities
 should be planned for in a timely fashion, but not at the expense of the
 customer.  Once signatures are on the dotted line, CEOs must move quickly to
 implement the proper integration plan.
 
     Q: What do you think is the biggest misstep companies make once they've
 merged?
     Richter comment: "Management teams lose sight of the customer.  The
 customer is why we are all in business.  Mergers fall apart when the company
 focuses internally at the expense of the customer.  Everything should be set
 up to maintain the customer base, maintaining revenues, timely delivery of
 products or services.  Managing the customer's expectations is critical.  I
 call it "one face to the customer."  The ability to buy, take an order, ship
 an order bill an order and collect.  All functional departments must be
 aligned in order to make this happen."
 
     Q:  The past two years have been witness to multiple mergers among the big
 food companies, what happens now?
     Richter comment:  We are now going to see a tremendous amount of activity
 regarding divestitures and spin-offs and this relates directly to post-merger
 success -- just how a company sheds the businesses it deems as non-core.
 It's all part of the organic process of a company seeking its focus. We've
 already seen the beginning of the sell-off of non-strategic businesses such as
 Unilever selling the Bestfoods Baking Group; General Mills selling Pillsbury's
 Green Giant business and the Hagan Daaz brand. What one company ultimately
 decides to sell will catch the eye of a buyer -- who's looking to grow by
 strategic acquisitions.  It's not that these are necessarily weak businesses
 or brands,  it's just that they are not needed in the new configuration.  The
 market is calling for focus."
 
     Q:  We've started to see some creative partnering from food manufacturers,
 such as Procter & Gamble and Coca-Cola, will this continue as well?
     Richter comment: Creative partnering will increasingly be seen as a key
 business strategy. There are already numerous efforts underfoot to draw
 retailers and manufacturers closer together in order to drive efficiency. But
 we are now at the front end of two waves of partnerships -- one that supports
 product development, the other focusing on product promotion and distribution
 efficiencies.   The need for product innovation will drive cross industry
 alliances.  For example, the search for functional foods has lead to
 partnerships between food companies and pharmaceutical companies such as
 Quaker and Novartis. The second wave of partnering will focus on innovative
 ways to promote products such as the partnership between Procter & Gamble and
 AOL Time Warner and Coca-Cola and Disney. The pressure to build market share
 and grow the bottom line will drive innovation. Creative management teams that
 can achieve results through untraditional means will be successful.
 
     Q: Is being a competitor in food and beverage any different today that it
 was a year ago, before this latest round of consolidation?
     Richter comment:  Yes. Consolidation enables food manufacturers to reap
 rewards when it comes to distribution and direct store delivery.  There's a
 host of new marketing advantages brought about by bundling powerhouse brands.
 However, in order to realize these benefits companies are going to have to be
 willing to invest in advertising and promotion.  Dollars spent against the
 right brands will lead to long term revenue growth.
 
     Q:  Do consumers care that their brands are changing hands?
     Richter comment:  Yes. Companies need to assure consumers that the
 qualities they love about a particular brand such as off-beat packaging or a
 commitment to children's health will continue. Food and beverage companies
 that preserve the equity of the brands in their newly acquired product
 portfolios will gain the most value from their merger. Smart executives know
 that companies own trademarks, consumers own brands."
 
     Q:  As companies grow their market share, are they at risk of raising
 eyebrows at the Federal Trade Commission?
     Richter comment: Yes, that's why when companies initially present filings
 to the FTC they are very open about what they intend to sell.  We've seen this
 in several instances. For example, regarding the new Dean/Suiza merger , the
 companies are expected  to divest themselves of dairies in overlapping markets
 to win antitrust approval.  Companies need to put caps on their market share
 if they are to satisfy regulatory concerns.
 
     Q:  What happens when a merger fails?
     Richter comment:  Failure to uncover issues during due diligence can cause
 mergers to go astray in the beginning phases. Most failures take place due to
 the lack of planning. Mergers take time.  Failure to put steps in place to
 mitigate risks causes mishaps.  Ultimately this causes an inability to deliver
 to the customer. When this happens, brands lose share, or worse, disappear.
 If a merger does not produce promised results it will weaken the company,
 reduce shareholder value, and basically put the company at a great
 disadvantage in the marketplace.  All of a sudden that great acquisition,
 designed to improve market positioning, now causes market decline.
 
     KPMG LLP is the accounting and tax firm that understands the needs of
 business in the global economy. We help our clients by devising
 results-oriented business strategies, providing insights that help them stay
 ahead of the competition and achieve market-leading results. KPMG LLP is the
 U.S. member firm of KPMG International. KPMG International's member firms have
 more than 108,000 professionals, including 7,000 partners, in 159 countries.
 KPMG's Web site is http://www.us.kpmg.com
 
 

SOURCE KPMG LLP
    NEW YORK, April 17 /PRNewswire/ -- The wave of merger and acquisition
 deals among major food players has crested.  Now comes the hard work of
 integration to assure that these unions deliver on the promise to produce more
 profitable and viable companies. According to Alice Richter, national partner-
 in-charge of KPMG LLP's food and beverage practice, "There is a formula for
 succeeding at integrating two companies but time and time again the formula
 takes a back seat in terms of other company priorities."
     The following Q &A with commentary from Alice Richter, offers an analysis
 of business opportunities and issues in the food industry in this post-merger
 environment. Richter has 26 years of experience in the United States and
 Europe serving food processors, agribusinesses and retailers.
 
     Q:  At what pace will we see mergers in the next year?
     Richter comment:  "The rash of M&A deals in the food and beverage industry
 over the past 18 months now puts the largest players in full post-integration
 phase. Executive management teams must now be focused on managing the
 integration of the two companies to result in a better, stronger, hybrid."
 
     Q:  What were the factors that sparked the merger frenzy in the first
 place?
     Richter comment:  "The pressure to increase shareholder value. In an
 industry growing at only 1 to 2 percent per year, organic growth was too slow
 and food companies were forced to rethink their business strategies and look
 outside.   It's also becoming clear that companies with a presence on the
 global landscape are better able to deliver value to their shareholders
 through better competitive positioning, more cost-effective distribution,
 procurement and access to markets.  These are some of the reasons that
 management teams look beyond their borders."
 
     Q:  How successful is post-merger integration overall?
     Richter comment  "KPMG has found that 80 percent of mergers historically
 do not deliver the value that was anticipated.  When you combine two
 companies, the focus should be on maintaining control of the current two
 businesses, control of the integration at large, maintaining customer
 satisfaction and securing the financial benefits.  Synergy opportunities
 should be planned for in a timely fashion, but not at the expense of the
 customer.  Once signatures are on the dotted line, CEOs must move quickly to
 implement the proper integration plan.
 
     Q: What do you think is the biggest misstep companies make once they've
 merged?
     Richter comment: "Management teams lose sight of the customer.  The
 customer is why we are all in business.  Mergers fall apart when the company
 focuses internally at the expense of the customer.  Everything should be set
 up to maintain the customer base, maintaining revenues, timely delivery of
 products or services.  Managing the customer's expectations is critical.  I
 call it "one face to the customer."  The ability to buy, take an order, ship
 an order bill an order and collect.  All functional departments must be
 aligned in order to make this happen."
 
     Q:  The past two years have been witness to multiple mergers among the big
 food companies, what happens now?
     Richter comment:  We are now going to see a tremendous amount of activity
 regarding divestitures and spin-offs and this relates directly to post-merger
 success -- just how a company sheds the businesses it deems as non-core.
 It's all part of the organic process of a company seeking its focus. We've
 already seen the beginning of the sell-off of non-strategic businesses such as
 Unilever selling the Bestfoods Baking Group; General Mills selling Pillsbury's
 Green Giant business and the Hagan Daaz brand. What one company ultimately
 decides to sell will catch the eye of a buyer -- who's looking to grow by
 strategic acquisitions.  It's not that these are necessarily weak businesses
 or brands,  it's just that they are not needed in the new configuration.  The
 market is calling for focus."
 
     Q:  We've started to see some creative partnering from food manufacturers,
 such as Procter & Gamble and Coca-Cola, will this continue as well?
     Richter comment: Creative partnering will increasingly be seen as a key
 business strategy. There are already numerous efforts underfoot to draw
 retailers and manufacturers closer together in order to drive efficiency. But
 we are now at the front end of two waves of partnerships -- one that supports
 product development, the other focusing on product promotion and distribution
 efficiencies.   The need for product innovation will drive cross industry
 alliances.  For example, the search for functional foods has lead to
 partnerships between food companies and pharmaceutical companies such as
 Quaker and Novartis. The second wave of partnering will focus on innovative
 ways to promote products such as the partnership between Procter & Gamble and
 AOL Time Warner and Coca-Cola and Disney. The pressure to build market share
 and grow the bottom line will drive innovation. Creative management teams that
 can achieve results through untraditional means will be successful.
 
     Q: Is being a competitor in food and beverage any different today that it
 was a year ago, before this latest round of consolidation?
     Richter comment:  Yes. Consolidation enables food manufacturers to reap
 rewards when it comes to distribution and direct store delivery.  There's a
 host of new marketing advantages brought about by bundling powerhouse brands.
 However, in order to realize these benefits companies are going to have to be
 willing to invest in advertising and promotion.  Dollars spent against the
 right brands will lead to long term revenue growth.
 
     Q:  Do consumers care that their brands are changing hands?
     Richter comment:  Yes. Companies need to assure consumers that the
 qualities they love about a particular brand such as off-beat packaging or a
 commitment to children's health will continue. Food and beverage companies
 that preserve the equity of the brands in their newly acquired product
 portfolios will gain the most value from their merger. Smart executives know
 that companies own trademarks, consumers own brands."
 
     Q:  As companies grow their market share, are they at risk of raising
 eyebrows at the Federal Trade Commission?
     Richter comment: Yes, that's why when companies initially present filings
 to the FTC they are very open about what they intend to sell.  We've seen this
 in several instances. For example, regarding the new Dean/Suiza merger , the
 companies are expected  to divest themselves of dairies in overlapping markets
 to win antitrust approval.  Companies need to put caps on their market share
 if they are to satisfy regulatory concerns.
 
     Q:  What happens when a merger fails?
     Richter comment:  Failure to uncover issues during due diligence can cause
 mergers to go astray in the beginning phases. Most failures take place due to
 the lack of planning. Mergers take time.  Failure to put steps in place to
 mitigate risks causes mishaps.  Ultimately this causes an inability to deliver
 to the customer. When this happens, brands lose share, or worse, disappear.
 If a merger does not produce promised results it will weaken the company,
 reduce shareholder value, and basically put the company at a great
 disadvantage in the marketplace.  All of a sudden that great acquisition,
 designed to improve market positioning, now causes market decline.
 
     KPMG LLP is the accounting and tax firm that understands the needs of
 business in the global economy. We help our clients by devising
 results-oriented business strategies, providing insights that help them stay
 ahead of the competition and achieve market-leading results. KPMG LLP is the
 U.S. member firm of KPMG International. KPMG International's member firms have
 more than 108,000 professionals, including 7,000 partners, in 159 countries.
 KPMG's Web site is http://www.us.kpmg.com
 
 SOURCE  KPMG LLP