M&A activity is a resurgent feature of a rapidly evolving consumer goods market. There’s a premium on acquiring and integrating new consumer businesses into an enterprise – and, in reverse, quickly spinning off a business to a prospective buyer.
Speed is of the essence for these “Plug-and-Play” strategies: The faster the switch, the bigger the benefit. However, convoluted systems, processes and infrastructure at most Consumer Packaged Goods (CPG) firms too often put the brakes on swift integration. Forward-thinking organizations, however, are preparing for the future and untangling this complexity so they can unlock the full value of Plug and Play – now or later.
Why Plug and Play?
CPG is in a tight spot. For most players, years of cost rises and market uncertainty have translated into stubbornly low profitability and growth. At the same time, CPG leaders are struggling to innovate their way out of trouble. Despite an overwhelming 79 percent of CPG leaders ranking innovation among their top three priorities, a massive 80 percent of CPG firms are struggling to innovate at scale.1
In this environment, CPG leaders are turning to M&A to locate new sources of value – diversifying offerings, enabling cost reduction, penetrating untapped markets, providing new customer insights and accelerating growth at once. This potential will drive continued M&A activity over the next year and beyond. A recent survey revealed more than half (55 percent) of CPG leaders expect growth in the industry’s total acquisitions for 2024, with 89 percent prioritizing expansion by acquisition.2
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Examples can be found across the sector. Mondelēz International’s highly active acquisition pipeline is one case in point. The company’s CFO, Luca Zaramella, states: “Our framework around M&A is very straightforward. We are targeting growth accretive assets that meet key consumer needs and fill portfolio gaps, both from a category standpoint and geographically.”3 Similarly, Unilever’s plans to spin off its ice cream businesses represent an opportunity to cash out and re-shape strategy.4
The key for CPG companies is to acquire “bolt-on” brands, business units and capabilities at speed. Forward-thinking organizations know that when an opportunity to merge or demerge is identified, lost time is lost value. Each week of delay can mean lost profits, increased costs or heightened risk that markets, regulation or competition kill off the transaction – closing the window of opportunity altogether. Speed of execution can be worth billions of dollars.
Barriers to Successful Bolt-on Transformation
However, the task at hand is not easy. Most studies see a rate of failure for acquisitions between 70 and 90 percent.5 Divesting and integrating a new products business effectively can take years of planning and execution, with steep learning curves. Potential pitfalls are myriad, with core problems including:
- Operating models and processes that are complex, undocumented and difficult to separate.
- Core systems and tools in use across units that are bespoke, interdependent and unaligned.
- Unstructured and unharmonized data sitting in silos.
- Uncertainty among and difficulties retaining top, mission-critical talent.
- Legal and regulatory issues in new markets or sectors.
- An absence of the right leadership, management skills and culture to drive change.
Complex barriers like these can generate massive friction – leading to multi-year programs to re-organize, streamline and standardize. However, today’s CPG leaders are faced with much smaller windows to successfully execute transactions.
Consider a six-month window scenario. In that timeframe, leaders must untangle systems, contextualize and democratize data, standardize processes, mitigate organizational upheaval, safeguard intellectual property and forestall customer attrition, among other tasks. It’s a huge challenge – but one that can be met with the right foresight.
Diagnosing Plug-and-Play Readiness: Six Pillars for Success
The good news is that the disciplines needed to move quickly can be assessed and worked on in advance – all in anticipation of the need to merge or demerge in the near- or long-term.
To help CPG leaders understand where they sit on this readiness spectrum, WNS has identified six key diagnostic questions. Responses to these questions indicate how prepared enterprises are for Plug-and-Play mergers or demergers and highlight the current practices in need of re-imagination or investment.
Figure 1: Six Pillars of the CPG Plug-and-Play Readiness Framework
Process
Do you have documented, standardized and flexible processes that can be transferred / integrated?
Well-organized processes provide the central “map” of how a business works and a baseline onto which the “to-be” approach will be built. In contrast, disarrayed processes lack this guiding map, necessitating thorough process due diligence and re-modeling. True process excellence is the work of decades, but meaningful steps forward can be made quickly. For instance, documenting all in-scope processes, quantifying the performance of key metrics, establishing clear process ownership, optimizing processes end-to-end, and introducing next-generation process-mining and process-mapping tools.
Technology
Do you have a modern, modular IT architecture, well-configured core (e.g., ERP) and best-of-breed systems?
The need for a clear architecture and technology strategy has not disappeared in the age of Generative AI – in fact, the opposite. So, any acquiring CPG firm needs to comprehend, access and manage the wide portfolio of systems in the target business. It must understand how they fit with the existing core systems and infrastructure while identifying risks and devising mitigation strategies. For instance, a notable concern revolves around bespoke, obsolete technologies that cannot easily be supported post-transition.
Data
Do you have a clear and structured data infrastructure and approach to data management?
It’s not just processes and systems that are to be migrated – the whole data model of the transferred business needs to make sense in the newly formed entity. M&A can unveil challenges in data integration, data quality, security and privacy, and scalability. Forward-thinking CPG companies can address many of these issues with a focus on data management and investment in the right data infrastructure and tooling. For example, data contextualization platforms can create structured and harmonized data across the enterprise, with unified views of customers helping to elevate and integrate the quality of data in the business.
People
Do those who matter to the business feel motivated and on board with the move?
M&A is a potentially highly disruptive experience for colleagues. A Plug-and-Play strategy must be backed up by the right talent management approach. Retaining and motivating key talent during M&A can prove integral to capturing deal value and limiting disruption. This is underpinned by a company culture that is entrepreneurial and dynamic, coupled with ample proactive communication and a strategic resourcing plan that considers the long-term skill needs of the enterprise and individuals.
Regulation and ESG
Have the regulatory, environmental, social and governance considerations of the transaction been understood and addressed?
Most areas of the consumer goods market have deep and complex regulatory and Environmental, Social and Governance (ESG) dimensions – ranging from market concentration, food quality and energy efficiency to supply chain compliance and transparency. M&A can impose new requirements or new combinations of requirements on the acquirer. Plug-and-Play CPG firms can’t change the rules, but they can develop the skills, tools and insights needed to navigate this landscape. For example, as one technique, always-on risk assessment and monitoring can limit exposure and prevent regulatory roadblocks from slowing progress.
Change
Do you have the management and transformation experience to drive through a rapid merge or demerge?
Transferring a company into a new organization is a major transformation program – requiring detailed planning, technology implementation, change and communication, process and organization engineering, and other heavy-lifting. Executing Plug and Play at speed will depend on a surge in experienced change capabilities. There’s no need for your Plug-and-Play transformation to be the first such rollout that your transformation team has faced.
Ready to Play – Today or Tomorrow?
The precise route toward seamless Plug-and-Play M&A will be unique for each CPG firm. Using the CPG Plug-and-Play readiness framework above can help crystallize thinking about the priorities needed to merge or demerge more successfully.
However, while Plug and Play places an emphasis on the short-term, it also signifies a long-term mindset. Even without a specific merger or demerger planned in the year ahead, a CPG company that is ready for M&A enhances its long-term value by building the option to merge or demerge. Consumer tastes, market conditions and technology are creating new opportunities at pace. Future-facing CPG firms are ready for Plug and Play – today and tomorrow.
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References
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An Innovation Wake-Up Call for CPG Companies, Boston Consulting Group
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2024 Consumer Products Industry Outlook, Deloitte
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Food Execs Signal a Strong Appetite for M&A in 2024, Food Dive
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Accelerate Growth Action Plan Through Separation of Ice Cream and Launch of Productivity Program, Unilever
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Don’t Make This Common M&A Mistake, Harvard Business Review