Just as the semiconductor shortage took the automotive industry by surprise, the growth in M&A activity and business spinoffs has come as an unexpected—although more welcome—trend in 2021. And it’s causing quite the supply chain stir!
As widely reported, companies and investors emerged from the COVID-19 crisis with their sights set on consolidating to fortify vulnerabilities, including those in supply chains, that were revealed in the pandemic. “Simultaneously, buyout firms and blank-check companies have been deploying hundreds of billions of dollars at a feverish pace,” wrote the Wall Street Journal on Sept. 7.
What’s more, many corporations and investors have enormous sums to invest after conserving cash in response to the early fallout from the pandemic. Low interest rates and surging economic growth (albeit tempered recently by Delta outbreaks) are also driving large investment deals.
Resilinc’s EventWatch AI has been tracking this trend closely and reported on it in our Half Year Report 2021. The beginning of 2020 saw an extreme drop in M&As due to the pandemic, but as of the end of June, 2021, M&As had surpassed even 2019 numbers by 5x. Resilinc’s EventWatch AI data also shows a 300% increase in M&As from H12020 to H12021.
And the trend is continuing into the second half of 2021: our Sept. 10 EventWatch Newsletter for example noted more than 80 business sales, M&As, and leadership transitions. Eighty events in one single week!
Although these impacts generally manifest over months – unlike factory fires and extreme storms and other common types of disruptive events that have immediate impacts – these types of changes in the ownership or management of supplier firms still lead to major impacts on supply chains.
For example, in the wake of a major corporate ownership change, supply chain managers can find their formerly reliable suppliers no longer available. This happens because acquirers or investors or a new CEO have made strategic decisions to exit certain business lines or sell business units (in some cases to finance the acquisition). Or product quality can suffer due to changes in management philosophy or corporate strategy.
With the lag time between the announcement of an M&A or similar change in ownership or leadership, supply chain managers can be lulled into thinking that all will be well with the suppliers they rely on. This is a formula for amplifying the impacts of any changes like those described above.
A best practice is for supply chain practitioners to monitor any post-M&A changes closely to assess how suppliers on all tiers could be affected. This can be most effectively done in a supply chain risk management system that continuously monitors and evaluates all possible impacts on suppliers with a service such as EventWatch AI. For example, if an acquirer decides to sell a site in Asia, EventWatch subscribers relying on supplies from that site will be alerted.
Risk-based “what-if” scenario analyses can also be conducted to identify alternate suppliers who could be called upon to provide any parts, materials, products or services—such as contract manufacturing—that might be at risk after a corporate sale, acquisition, restructuring or leadership change.