Resilinc’s 24/7 monitoring system, EventWatchAI, is designed to track over 50 types and 400 sub-types of supply chain disruptions. This includes extreme weather events, cyberattacks, labor issues, and industrial accidents, to name a few. When receiving EventWatchAI alerts, clients are often surprised to find that Mergers & Acquisitions (M&As) are a frequently occurring disruption in their inboxes.
In 2022, M&As were the second most reported disruption tracked by EventWatchAI (following factory fires, which consistently rank #1). Mergers & Acquisitions, especially by key supply chain partners, can significantly impact partner companies and the supply chain at large. In this blog, we discuss the true impact that Mergers & Acquisitions can have on the supply chain and how they can affect your company.
What are Mergers & Acquisitions?
You’ve probably heard of some of the most notable M&As in the past few years, such as when Adobe acquired Figma in 2022 for $20 billion or when Heinz and Kraft merged in 2015 to become one of the largest food companies in the world. Before we dive into the supply chain impact of Mergers & Acquisitions, let’s first look at the definition of M&As. According to Gartner:
“Mergers and acquisitions (M&A) are transactions in which the ownership of companies or their operating units — including all associated assets and liabilities — is transferred to another entity. A merger is the consolidation of two entities into one, whereas an acquisition occurs when one company takes over ownership of another. M&A enable organizations to grow or downsize and to adjust their competitive position.”
While M&As are formed with positive goals in mind such as gaining market share, expanding into new locations, combining products, or reducing operational costs—the impact on the supply chain can be both negative and positive. Let’s look at the different ways they can impact the supply chain.
#1 Build Supply Chain Resilience
Following the pandemic, many companies realized they needed more visibility into their supply chains and scrambled to remedy longstanding supply chain issues. As our CEO and Co-Founder, Bindiya Vakil put it, “Companies have realized coming out of the pandemic that they really lacked visibility where parts are made, stored, and distributed around the world.”
Thanks to this wake-up call, many companies turned to Mergers & Acquisitions to accelerate change and secure better transportation, logistics, technology, and warehouse space. This is one way M&A can have a positive supply chain impact. If companies strengthen their supply chain by joining with another company, their suppliers, clients, and customers can benefit from the increased supply chain resilience.
For example, American Eagle Outfitters acquired Quiet Logistics, a fulfillment company, in 2021. This deal provided American Eagle with a network of local distribution centers throughout the US. Not only did the company benefit from streamlined inventory management, but customers also experienced faster delivery times.
#2 Cause Security Threats
Finding which platforms and software to use, migrating to new emails, and introducing new processes can all create room for security threats to occur. A lot of confidential information is sent back and forth during the process of an M&A, as well, which makes it easier for bad actors to take advantage of the confusion.
Take, for example, when CommonSpirit Health was formed after the merger of Dignity Health and Catholic Health Initiatives in 2019. In 2022, the healthcare company had to pick up the pieces after a ransomware attack that likely resulted from the merger. Because healthcare companies rely on many providers with a low level of technology, it makes them more susceptible targets to cyberattacks.
Cyberattacks can be costly too. In 2020, the average loss caused by a data breach in the US was $4.35 million, according to IBM. The costs and time to prevent these cybersecurity breaches or clean up the fallout can cause major supply chain disruptions. Learn more about cybersecurity and its impact on the supply chain in Resilinc’s Spotlight on Cybersecurity: Top Supply Chain Threats and Best Practices.
#3 Create Delays as Suppliers Shift
Before a merger occurs, there’s a due diligence period where the companies involved are only allowed to share limited supplier information. Once the deal is closed, companies can start to share information and details about the type of overlap in their supplierbase and priorities for addressing opportunities related to cost reduction synergies, processes or supply chain risk reduction (for example to name a few).
For example, in the automotive industry, there are about 20,000 parts in a vehicle. Each piece comes from different sources and manufacturers to create a working vehicle. In the case of an M&A, many suppliers will have to be consolidated, relocated, and/or realigned logistically. As companies figure out which suppliers to use, or how to delegate processes amongst existing suppliers, it can create significant delays.
Mergers & Acquisitions Impact on Supply Chains in 2023
While Mergers & Acquisitions were the number two supply chain disruption in 2022, they are declining. In Q1 of 2023, there were 439 M&A disruptions, compared to 545 in Q1 of last year—a 19% decline year-over-year. The trend continued even more when comparing Q2 2022 and Q2 2023, showing a 30% decline YoY.
As the pandemic subsided and interest rates began to rise—global mergers and acquisitions have shrunk to their lowest level in more than a decade in 2023. When fears of the recession subside, and interest rates go back down, we should expect to see more Mergers & Acquisitions again. Now that you know how M&As can impact supply chains, you can stay alert when news of new M&As comes out. Using this list, you can more accurately gauge how an M&A could affect your company.
Are there other supply chain disruptions your company is worried about? Learn more about how EventWatchAI can help your company identify impacts in over 100 languages, 200 countries, and 400 risk types. Learn more about EventWatchAI here.