Client Situation
A global agricultural corporation desired to expand its US operations by acquiring a nearby manufacturing facility in the same line of business, with the intent to lower operating costs, grow market share, and improve the combined companies’ pricing power for their products in an industry where the barriers to entry are high. The manufacturing facility to be acquired was considered a non-core business by its UK based owner.
Solution
A E78 partner led the development of a financial model and business plan to understand the target’s operating costs and the impact of running both manufacturing facilities as one organization. Leading this process with a collaborative and inclusive management style, he included the key operating personnel of both entities in developing this business plan. Key milestones were established for the integration of the two companies and weekly status meeting updates were held. KPIs were also established to monitor progress against the new business plan. Both positive and negative variances were reviewed to understand the long term and the short-term impact on the business plan.
Results
- The combined company met all return targets each year during the 5-year life of the business plan
- The combined processing facility increased the sales pricing power in the market
- A 5-year supply contract was established with an existing customer that utilized 65 percent of the acquired facility’s production capacity. This contract was on a cost-plus basis and on its own met all of the buyer’s return targets including payback and IRR for purchasing the facility. The remaining 35 percent of manufacturing capacity was utilized by that facility’s existing customer base.
- Higher volume purchases allowed the company to negotiate lower raw material unit costs
- Since the two processing facilities historically shared many of the same customers, post-acquisition the company was able to combine manufacturing runs in one facility, improving product consistency and simplification of the supply chain for customers, while improving operating efficiencies due to lower set up times
